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.
B) Tesla will overcome difficulties and grow thanks to its leading position in the electric car sector and to the market potential.
Even though Tesla is in trouble right now, it is still well-positioned for the future. The company is the leader in the electric car industry and has a strong international presence.
Furthermore, the electric car market is growing strongly.
Thanks to the layoffs Elon Musk managed to overcome this difficult phase.
Tesla is preparing to pause hiring around the world and reduce its staff by 10%. It was a shocking announcement from CEO Elon Musk.
In the e-mail sent to the executives of the group, Musk speaks of a “hiatus in all hiring in the world.” Because of a “very bad feeling” about the economy.
Tesla currently employs nearly 100,000 people in factories in the US, China, and Berlin. Ten percent of the Tesla team is about 10 thousand employees.
The two main problems with these staff cuts are:
1 – One is the impact on the production of lockdowns in Shanghai where Tesla has a factory.
2 – The delay in the production of cars in the two factories in Germany is due to the fact that Tesla is unable to have an efficient supply of components, especially for the construction of batteries.
After which it could return to growing non-stop for at least 5 years.
Thanks to the recent capital increase, Tesla has enough liquidity to overcome this difficult phase.
Musk focuses heavily on the future of electric cars and on the growth of the market.
IN THE PAST MUSK HAS RISKED EVERYTHING AND FAILED BUT IN THE END, HE CAME BACK STRONGER THAN EVER
In 2008, Musk risked everything and invested all of his savings in Tesla. The company has been close to bankruptcy several times but Musk has always managed to overcome difficulties.
In 2018, for example, Tesla was close to bankruptcy due to the production of the Model 3. Musk had to mortgage his house to get a $5 million loan to save the company.
Eventually, Musk managed to overcome the difficulties. Today Tesla is one of the most innovative companies in the world.
Not only that: he then invested in something very difficult, in space research and today he is one of the key players in this sector with Space X
Finally, there was the move to purchase the social media Twitter: another bet as often happens for Musk.
Basically, Musk is a visionary and an innovator, but at the same time a man who knows how to take risks and constantly lives by the limit of his possibilities.
On the one hand, it is positive because it means he is used to it and it is not a situation of pressure and danger for him and his company.
On the other hand, you never know when a financial “black swan” could arrive, a market situation that you did not expect or believe would ever happen and it knocks you out for good.
In essence, Tesla’s situation is very uncertain and can be defined as a “roller coaster.”
There are those who think that Musk will be able to overcome this difficult phase and that the company will return to grow exponentially, even beyond 1200 dollars, thanks to his vision and the enormous potential of the electric car market.
There are those who think that the situation is now compromised and the company will not be able to overcome the difficulties. We will find out in time.
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