Q2 auto sales ran out of gas amid slowing rates of EV adoption, fierce competition and controversy swirling around owner Elon Musk. But the company is poised to rev up innovation, with hype around its automated driving and battery business growing. As part of our Consumer Technology focus , we ask: is this Tesla’s make-or-break moment? Tesla's sales are slowing, but investor hype is riding the possibility of future success / Unsplash Tesla, once an untouchable leader in the electric vehicle (EV) space , is feeling the heat from mounting competitive pressures and shifting market dynamics.
The company’s second-quarter earnings, reported late last month, offered both a snapshot of its current struggles and a glimpse into its long-term strategy. The weaker-than-expected performance saw US sales drop by 6.3% year-over-year (YoY) in Q2, even as the broader US EV market grew by 7.
3% over the same period, per Kelley Blue Book data. Globally, the company has maintained its position as the world’s top EV manufacturer, though global sales slid for the second consecutive quarter. And while revenue was up 2% YoY, reaching $24.
93bn, automotive revenue fell 7% from the same quarter last year. Meanwhile, the company is losing ground in critical EV markets like California. The state saw Tesla’s sales plummet 24.
1%, contributing to a 2.3 percentage point drop in market share in California compared to the same period last year. Plus, registrations of all-electric vehicles in California fell by 1.
2% YoY in Q2, a drastic shift for a market that recorded 55% YoY growth as recently as last summer. These figures are particularly concerning given California’s ambitious goal of banning new carbon-emitting vehicle sales by 2035. Slowing adoption rates in what was previously a high growth market spells bad news for Tesla, which is attempting to maintain its existing customer base while attracting more mainstream buyers.
Mapping the bumps in the road A closer look at Tesla reveals cracks in the foundation of its core EV business. The company’s aging model lineup and relatively high prices have made it difficult for it to make headway in markets where early adopters have already purchased EVs and mainstream buyers remain hesitant. And despite efforts to spark demand through price cuts and low-interest financing rolled out earlier this year, Tesla’s strategies appear to have lost their luster.
“They cut prices significantly, 25-30% over the last 12 to 18 months, and they were able to do that – to give up some profits – [in order] to maintain some level of volume, which helps keep profit margin from declining too rapidly. So they were able to do that, but I think that kind of ran out of steam,” Steve Man, global lead director for auto and industrial market research at Bloomberg Intelligence, tells The Drum. Compounding these issues is an increasingly crowded marketplace.
A handful of new EV models hit the market in Q2, including the Cadillac Lyriq, Kia EV9 SUV, BMW i5 and the Honda Prologue. Ford, meanwhile, dialed up production of its Mustang Mach-E as well as its F-150 Lightning, helping to cement the American automaker’s place as the second largest EV maker in terms of sales, just behind Tesla (though the company announced last week that it plans to reduce its EV investments). Kia was also a standout in Q2, recording 112% YoY growth in EV sales, equating to nearly 30,000 vehicles.
Meanwhile, big EV players like GM, Rivian and Stellantis are introducing more affordable EV models. As a result, Tesla’s market share in the US has dipped below 50% for the first time. Vehicle price cuts and low-interest financing efforts have provided only short-term relief, as competitors offer fresh models and more affordable options.
And the company’s aging fleet no longer looks like the shiny toys they once did against the more modern designs of rivals. Advertisement Despite these hurdles, Tesla’s global performance remains a bright spot – though even that is starting to show signs of strain. Tesla is facing growing pressure from China, the largest EV market in the world.
The country’s leading EV manufacturer, Byd, is growing rapidly. For now, Tesla is still outpacing Byd, selling 830,766 units in the first half of 2024. As of this month, Tesla’s market cap hovers just above $690bn, much higher than Byd's $78bn.
But China is closing in. “China is very strong. Sales are strong .
.. China has hundreds of EVs models available at a very budget-friendly level, and that has driven a lot of the growth over there,” says Man.
Plus, the country is aggressively investing in expanding its EV charging infrastructure and has, in recent years, rolled out incentives that give consumers discounts for buying EVs. Musk is keeping a close eye on the market as competition intensifies. He visited Beijing in April, when local authorities lifted restrictions on Tesla vehicles after the company’s China-made cars met the nation’s stringent data security standards.
A stock fueled by the promise of what’s to come Despite the many headwinds, investor sentiment has not fully soured on Tesla. For one, the company remains profitable; gross margin for Q2 was nearly 18% (though at its peak in 2011, this number was nearly 37%). Plus, Tesla’s vertically integrated model, which has brought many engineering processes in-house, continues to give the automaker a competitive edge when it comes to innovation, says Man.
Meanwhile, Tesla’s stock, which plunged earlier in the year, has since rebounded by more than 60%, fueled by investor optimism around future ventures, including its plan to debut an autonomous taxi, or Robotaxi, and advancements in AI, as well as the company’s Optimus robot. These are projects that the company is betting big on – in July, billionaire chief exec Elon Musk said on a call with investors that “the biggest differentiator for Tesla is autonomy.” The automaker was expected to reveal plans for its highly anticipated Robotaxi in early August, but the event has been delayed until October, reportedly due to issues with the system’s programming and design.
Shares dropped on the announcement, but there is still a sense of optimism in the market about the project’s debut. “They’re evolving into some pretty tough categories, like Robotaxi and AI,” says Greg Silverman, global director of brand economics at Omnicom-owned brand consultancy Interbrand. “And while that’s happening, to fuel that growth and keep the financials they need, they’ve gone through some cost-cutting decisions.
” These measures have included major layoffs earlier this year – which included slashing the Supercharger team (though Musk reportedly rehired many who were initially cut), and booting much of the marketing department. Advertisement The effects have been felt internally – a Tesla insider, speaking on condition of anonymity, tells The Drum that employees are under significant pressure following these cost-cutting measures, as they’ve created more work for fewer people. And despite media and investor hype around Robotaxi, the tenor within the company is somewhat different.
“I don’t know how much excitement there is internally for Robotaxi,” the source says. Musk teases the Robotaxi – floated as a concept by Musk as early as 2019 – as a PR tool to keep investors bullish, the source suggests. “Robotaxi has been an effective sell by Elon for two years.
When the stock is at its lowest he puts out headlines around Robotaxi. That makes the employees excited, not because we have any knowledge, inside information on the program or confidence in a launch date, but because our company is on the front page of the news for announcements and rumors. Steve Jobs got headlines because he had an iPhone in hand.
Elon just has to say he is going to make the iPhone, and people flock to the stock.” For now, the source says, the company is hyper-focused on the success of the Cybertruck, its boxy, futuristic EV that hit the market late last year – and has since undergone four recalls for faulty components. The source isn’t confident that the Robotaxi will be ready to hit the road anytime soon.
They say that this year is about improving “fundamentals” and that next year, Tesla will likely be focused on its all-electric semi truck, expected to go into production late 2025. “The next big lift will be Semi, starting next year. Then probably Robotaxi in 2026,” the source says.
These timelines are purely speculative, but the employee notes that “it takes a lot to ramp production to the kind [required] to make a Robotaxi line successful.” Catch up on the most important stories of the day, curated by our editorial team. See the best ads of the last week - all in one place.
Learn how to pitch to our editors and get published on The Drum. In the meantime, Tesla is also continuing to expand its energy storage and generation business, which saw revenues double to $3bn in Q2, offering a potential lifeline as its core automotive business faces growing uncertainty. Heading into next year, Tesla has plans to ramp up the capacity of its lithium refinery and open a lithium iron phosphate (LFP) battery plant in Nevada.
The battery business, in particular, could be a bright spot in the company’s future, Man says. “A parking lot full of EVs, Teslas for example, will likely transform how power is produced and how power is distributed through the grid. You can look at each car as a power storage unit.
[That represents] a lot of opportunity if they can get this self-driving system right.” The Musk-ask question As Tesla faces a variety of external market shifts and internal engineering and business challenges, one additional factor impacting its success remains Musk himself. The mercurial billionaire, whose critical role in the world’s efforts to combat emissions through electrification made him a darling of the left for many years, has increasingly become a mouthpiece for conservative talking points.
Musk’s shift toward conservative rhetoric, amplified through his acquisition of Twitter, reborn as X , in 2022, has alienated some left-leaning Tesla buyers – a demographic that previously made up a significant portion of the company’s customer base. His controversial views on social issues and rallies against “wokeness” led to a decline in sales to Democrats – from 40% of Tesla’s total buyers in 2022 to just 15% in late 2023, according to data from research firm Strategic Vision. The decline was relatively short-lived, with the share of Democratic buyers reaching 35% in March of this year.
But now, Musk has aligned himself with Republican nominee and former President Donald Trump , despite saying previously that he would not vote for either Trump or Joe Biden (who’s since been replaced as the Democratic nominee by Vice President Kamala Harris). And some experts suggest that Musk’s behavior and personal brand are impacting Tesla’s own brand image, and, by extension, its business performance. “There is the problem of Mr Musk’s association with the brand and .
.. the very public personal controversies and yammering on X tends to create the kind of noise that drowns out the brand,” says Dr Robert Passikoff, founder and president of brand consultancy and market research firm Brand Keys.
In a new Brand Keys research study set to be released in September, Tesla does not rank among the top 100 brands in terms of customer loyalty. Passikoff suggests that the brand’s failure to meet consumer expectations and win their loyalty could impact Tesla’s financials. “Lots of things drive the stock market,” he says, “but loyalty and expectations are leading indicators of consumer behavior – and those have fallen off for the Tesla brand.
” Research in non-US markets have revealed similar findings. A 2022 survey commissioned by Der Spiegel found that Tesla holds the lowest favorability among major automakers with production facilities in Germany. Even when Musk was not explicitly mentioned, just 9% of Germans described Tesla as ‘very’ or ‘somewhat’ likable, while a striking 69% found the brand ‘less’ or ‘not at all’ likable.
Simply put: “Tesla is moving away from being seen as a ‘premium brand,’” Passikoff says. The research reflects attitudes in the market, so it’s unsurprising that consumers have voiced similar assessments of the brand online. Software entrepreneur Michael Sayman, for example, wrote in an X post in late 2022, “I think Elon’s public persona grew to the point where the Tesla brand perception is being overshadowed by his now.
Tesla sounded luxury before when I told people I had one. Now, it’s starting to sound like a ‘frat bro’ brand.” I think Elon’s public persona grew to the point where the Tesla brand perception is being overshadowed by his now.
Tesla sounded luxury before when I told people I had one. Now, it’s starting to sound like a “frat bro” brand. Idk what the solution for them is.
— Michael Sayman (@michaelsayman) October 22, 2022 Others have said as much. But even if Musk’s personal views leave a bad taste in some consumers’ mouths, it’s possible that Tesla has already done the calculus – and believes it won’t matter in the long run. As Interbrand’s Silverman puts it: “He’s making the decision to say, ‘I’m going to lead my company this way.
While it may alienate some people – and probably is – I’m going to win enough of them back for other reasons that the net result of it is still [going to be] positive for the business.’” Charging ahead At this point, many financial analysts remain cautiously optimistic on the stock, recommending Tesla as a buy ahead of its Robotaxi event in October. They argue that investors should look beyond vehicle sales and margins to consider the company’s gains in its batteries business and self-driving technology – areas that may be key drivers of Tesla’s top line in the coming years.
“I’m bullish on Tesla,” Bloomberg’s Man says. “There are a lot of opportunities beyond automotive for Tesla if they can get Robotaxi right, and I’m bullish that they can get it right because they have a lot of computing power that nobody else has.” Man suggests that Tesla’s and other companies’ decisions to “set their sights beyond automotive” are likely to pay off handsomely in the future.
Of course, questions remain about Tesla’s ability to maintain its lead as EV competitors close in. And while Musk’s bold promises about the Robotaxi, energy storage, AI and other projects may keep investors sweet on the stock, delivering on these pitches will be crucial for securing its success. For now, all eyes are on the road ahead.
For more, sign up for The Drum’s daily newsletter here ..
