Tesla’s GigaShanghai Sees May Sales Drop by 15%
Outbound production from Tesla’s GigaShanghai, its largest electric vehicle (EV) manufacturing plant globally, has seen a significant downturn, with a reported 15% decline in sales for May. This trend marks the eighth consecutive month of decreasing demand from the facility, which is critical for the company due to its expansive market in Asia and pivotal role in exports.
Contextualizing the Decline
This substantial drop to 61,662 vehicles shipped in May primarily reflects a broader contraction in the EV market, particularly in China, the world’s largest EV market. According to the China Passenger Car Association (CPCA), Tesla’s woes align closely with decreased consumer enthusiasm and heightened competition from local manufacturers, such as BYD and NIO. Tesla’s pricing strategy, including recent price cuts, reflects its urgency to maintain competitiveness but also underscores the market’s volatility.
Wider Impact in Global Markets
The grim sales figures are echoed in various European markets as well, where Tesla’s performance is struggling against rising competition and a shift in consumer preferences towards cheaper, localized options. For instance, in the United Kingdom and Germany, registration figures dropped 36% in May, raising concerns about Tesla’s long-term market share. This decline in registrations may indicate a larger trend, as consumers become more price-sensitive amid broader economic uncertainties.
The Tesla Business Model: Revenue Dependency on EV Sales
Despite a growing perception of Tesla as an AI or robotics company, it remains heavily reliant on vehicle sales, which constituted approximately 72% of its revenue and gross profit during the first quarter of 2023. Results showed the lowest sales figures in three years at the onset of 2023, amplifying challenges moving forward.
Stock Valuation: A Discrepancy Between Sales and Market Performance
Shooting past a market valuation of $1 trillion, Tesla’s stock is at odds with its declining sales figures. Recent months saw the stock price rally over 33% since the disappointing Q1 earnings, reflecting the market’s optimistic belief in potential future growth, particularly related to Elon Musk’s ambitious robotaxi plans scheduled for the latter half of 2023. However, this growth is reliant on the successful deployment of Tesla’s Full Self-Driving technology, which has not yet demonstrated a definitive competitive advantage over established players like Waymo in the autonomous vehicle market.
Expert Analysis: Market Sentiment Versus Operational Realities
Future Fund’s Gary Black recently articulated concerns regarding a “valuation disconnected from underlying fundamentals” as he sold his holdings in Tesla for the first time since 2021, emphasizing the prevalent downside risks in the current market environment. Analysts are now cautious, stating that Q2 sales could lag by 11% to 395,000 units in an optimistic projection, considering the current trends.
Emerging Markets: Some Resilience
Although gloomy headlines dominate, there are notable exceptions. In Norway, the most EV-adopting country, Tesla continues to maintain a loyal customer base. Similarly, in Australia, sales increased by 9% in May, bolstered by renewed interest in the refreshed Model Y. However, these localized successes do not significantly alter the overall picture of declining demand across most major markets.
Conclusion
With the halfway mark of Q2 nearing, Tesla faces mounting challenges that question its demand trajectory as global competition heightens and consumer behavior shifts. For investors and stakeholders, understanding the landscape of consumer preferences versus corporate valuations will be crucial in navigating the future of Tesla amidst fluctuating demand metrics.
About the Author
Christiaan Hetzner
Senior Reporter at Fortune, covering the auto industry and Europe’s changing business landscape.