Just seven months ago, in November 2021, Tesla’s stock hit $1,200. Everything was booming, perhaps too much (compared to the real market) on the stock exchange.

Today Elon Musk is laying off hundreds of employees from his factories in America, Europe, and Asia.

So what’s happening to the company that builds the best-selling electric car in the United States?

Layoffs are a normal occurrence in any company when trying to cut spending. But for Tesla, it seems to be different.

When you look at the company’s balance sheet, you see that while sales increased by 30% in 2021, costs grew by 40%.

The production was much less efficient than the goals set by the company. Musk then stated that the company will have to “cut the fat.”

This is a worrying event for investors, it could mean that Tesla is unable to stand up to the competition. Additionally, layoffs could negatively impact employee morale and productivity.

Despite these difficulties, is Tesla still well-positioned for the future? The company has several competitive advantages that could help it overcome these difficulties.

THE TWO SCENARIOS:

A) Tesla starts to decline then stabilize, due to competition and low-profit margins

Tesla’s stock will drop to $400 or $500 between 2022 and 2023, as the company’s struggles will increase with competition, and will not be able to maintain profit margins.

Around $500 is a significant market share, where it will stabilize, but it won’t grow much.

There are more and more car manufacturers making electric cars. They seem to grow like mushrooms and that is the new fashion and the new gold rush.

The latest to declare their desire to make electric vehicles: Audi, BMW, Jaguar, Mercedes, Volvo, and then there’s Baidu, even Apple, and the newborn Lucid Motor and Rivian who builds pickup trucks.

According to some estimates, in 2025 the sales of electric cars will rise to 21 million units, 10% of the global market (compared to 1% in 2020).

Battery manufacturing costs are also falling rapidly and are set to fall again in the coming years. This means that competition will be tougher and profit margins will be lower and lower.

Furthermore, traditional automakers have competitive advantages in producing electric cars over Tesla.

They have more industry experience and already have a large loyal customer base. In addition, they can count on a network of dealerships and workshops for maintenance and spare parts.

Almost all the traditional car manufacturers have moved to this market, especially starting with the hybrids that entice most families and young people at the moment.