The S&P 500 ended the first quarter of 2024 up more than 10%. But while the S&P 500 rose each day, its previous highs were crashing and burning.
Boeing ended the quarter down more than 25%, but it wasn’t the worst-performing stock in the S&P 500. That honor went to Tesla, which was down more than 29%.
This equates to a market capitalization loss of $230 billion. In addition, According to ~ According to Forbes, this contributed to a $55.1 billion drop in Tesla CEO Elon Musk’s net worth, dropping him to third place as the world’s richest person, behind French luxury goods tycoon Bernard Arnault and Amazon nerd Jeff Bezos.
Meanwhile, short sellers made $5.77 billion as Tesla’s stock price plunged. Still, Brad Gerstner of Altimeter Capital Buy a dipHe believes Tesla is making “tremendous progress at an accelerating pace” About autonomous driving technology.
In 2015, Musk told shareholders that Tesla cars would be sold by 2018. “Complete autonomy.” Will that happen in 2024?
Still, that won’t help improve the company’s first-quarter earnings report due April 17. At this point, beating Wall Street’s expectations for vehicle deliveries and revenue looks impossible.
On average, analysts expect deliveries of 457,000 units, but Emmanuel Rosner of Deutsche Bank cut his estimate. prediction From 427,000 to 414,000 units. And Morgan Stanley’s Adam Jonas lowered his delivery estimate to 425,000 units from 469,000 units.
Wells Fargo analyst Colin Langan recently said Tesla “It’s a growth company without growth.”
Chinese competitors
In late 2021, Tesla was perfectly priced. The stock was trading above $400. The company’s market cap was over $1 trillion. Investors were flocking to the company with anticipation. But then growth stalled.
Tesla’s Q4 2023 earnings, reported in January, were ugly numbers, with quarterly profits down 40% year-over-year. Today, Tesla’s market cap has been cut in half, to $544 billion. And the stock is down about 60% from its all-time high.
Higher interest rates and declining demand for electric vehicles (EVs) in the U.S. and Europe are among Tesla’s challenges. But the slowdown in China, which accounts for about a fifth of Tesla’s revenue, is proving to be a bigger factor. Insurance data tracked by CnEVPost shows a 5% year-over-year decline in China over the past 12 weeks.
The problem Tesla faces is one that is common across the EV market. EVs are more expensive than internal combustion engine vehicles, even with government subsidies. And with the added weight and range-maximizing drivetrains, EV owners are finding themselves wearing out tires every time. 6,000 miles.
Tesla, which dominated the EV market for the past decade, is now falling behind its Chinese rivals. Specifically, China’s BYD is outpacing Tesla. The world’s leading EV manufacturerAnd don’t look back.
In the first quarter, BYD launched the Qin Plus EV with a starting price of around $15,200, followed by the BYD Seagull, a small electric hatchback with a starting price of less than $10,000. By comparison, Tesla’s Model 3 sells for around $34,000 in China.
How should I use it?
industrial mutation
Tesla is contributing to the evolution of the EV market. Perhaps it will adapt to the rapidly changing market and move forward for decades to come. Or perhaps its best days are behind it. The important thing is the process.
Austrian economist Joseph Schumpeter first articulated the concept of creative destruction in his 1942 book. Capitalism, Socialism, Democracy. He described it this way: “A process of industrial change that constantly innovates the economic structure from within, constantly destroys old structures, and constantly creates new structures.”
Economic growth, as Schumpeter observed, begins with innovation by entrepreneurs, and then the demand for new businesses drives up the price of production, including labor.
This actually has a negative impact on existing businesses. They have to operate at higher price levels. They may also find their market share decreasing due to competition from new and innovative businesses.
Over time, as consumers move to products that incorporate more innovative technologies, demand for the older products declines. Then prices fall. And the period of great growth ends.
The immediate impact of innovation is that the market becomes saturated. The economy experiences upheaval as new businesses are incorporated. A recession may even occur.
According to Schumpeter, the recession phase is useful and creative. It brings the economy back to equilibrium through forced adjustments. Leveling during the recession encourages new innovations that are formed in the next phase of recovery.
Schumpeter called this process, in which new and innovative companies destroy the value of existing companies, creative destruction.
Undoubtedly, it will destroy the existing industrial and employment order and lead to mass layoffs of workers with obsolete skills. Nevertheless, it is necessary to maintain long-term economic growth.
Innovation creates new opportunities for workers in more creative and productive businesses. It also brings better and cheaper products to the market.
This is the way the world works. Dinosaurs like Kodak, Pan American Airlines, Bethlehem Steel, Montgomery Ward, Blackberry, and countless other extinct businesses disappear, and new, more nimble and creative companies emerge.
Janet goes to Guangzhou
As Tesla loses EV market share, its workers are feeling the impact. Recently, Tesla reduced By increasing production at its Shanghai plant, it has shortened workers’ work schedules from six and a half days a week to five days.
The creative destruction inflicted on Tesla by Chinese competitors also shows the folly of President Biden’s plan to transform the U.S. economy into a green energy powerhouse.
Cheap Chinese clean energy products, including EVs and solar panels, are flooding the economy. lower the price In the global marketplace, clean energy manufacturers from the U.S. and Europe cannot compete.
Chinese companies, like their American and European competitors, receive massive government subsidies, which allow production to far exceed demand.
This week, Treasury Secretary Janet Yellen traveled to Guangzhou and Beijing to ask Chinese officials to stop it, a request as absurd as Iowa Hawkeyes opponents asking Kaitlyn Clark to stop shooting so many three-pointers.
Governments do not like creative destruction when it interferes with their plans for planning the economy. The Biden administration is likely to increase Trump’s tariffs to counter China’s ability to make clean energy products faster and cheaper than U.S. companies.
But competition from Chinese companies is much bigger than just EVs and solar panels, and past efforts to erect trade barriers against Chinese companies have failed.
Consider the case of Chinese mobile phone manufacturer Huawei Technologies. A few years ago, the U.S. government restricted Huawei’s sales of its most advanced computer chips. Instead, the company developed its own chips, and in 2023, it posted record profits.
Investors in AI bubble stock Nvidia should beware. The stock has risen 19,000% over the past decade. The story that has driven the moon landing, which has driven the stock from $120 to $860 in the past 18 months, is that no one can make an AI chip as advanced as Nvidia. That story may no longer be true.
According to The Wall Street Journal, “Huawei has managed to deliver an AI chip that developers say matches the performance of some of Nvidia’s best processors.”
And just like Tesla’s stock price in November 2021, Nvidia’s stock price is likely to fall significantly in the coming months.
[Editor’s note: It really is amazing how just a few simple contrary decisions can lead to life-changing wealth. And right now, at this very moment, I’m preparing to make a contrary decision once again. >> And I’d like to show you how you can too.]
thank you,
MN Gordon
For Economic Prism
Janet returns to Guangzhou and goes to Economic Prism
