e demand for electric vehicles (EVs) has shown a continued decline in 2024, despite aggressive price reductions and incentive offerings from automakers.
Elon Musk’s Tesla, renowned for having the most popular EV on the market, faces renewed skepticism from analysts and investors. Morgan Stanley analyst Adam Jonas questioned, “Could Tesla lose money (sometime) this year?” in a note to clients yesterday (Mar. 6). Despite this, Jonas slashed his price target for Tesla to $320 from $345, citing concerns with the EV market.
Tesla shares have plummeted by over 13% since Friday and have consistently fallen for the last three consecutive days. In premarket trading Thursday, the stock dropped nearly 2%. Additionally, Tesla is no longer among the top 10 largest U.S. companies by market capitalization after being overtaken by Visa when trading closed Wednesday. This marks the first time in over a year that Tesla has been surpassed by the digital payments company.
Tesla’s Challenges
Over the past week, Tesla has faced setbacks, including an arson attack by a far-left group near its Gigafactory Berlin-Brandenburg in Gruenheide, Germany. The incident is estimated to cost Tesla “in the high hundreds of millions.” Furthermore, Tesla reported its lowest monthly sales total in China since December 2022.
The company is also entangled in a price war in China, with rival EV maker BYD introducing cheaper cars and slashing prices. In response, Tesla, along with other companies like Hyundai Motor and the General Motors-backed joint venture SAIC-GM-Wuling, have implemented their own price cuts or increased incentives.
“We believe price competition will persist in 2024 and will spur [manufacturers] to expand their cost-cutting efforts [in China],” Jonas noted.
Challenges Across the EV Market
Tesla isn’t the only company facing difficulties in the EV market.
Electric truck maker Rivian recently reduced its workforce by 10% — the company’s third round of layoffs since July 2022 — after failing to meet analysts’ expectations for the last quarter of 2023. Fisker, another startup, has warned of a potential collapse before the year ends.
Ford Motor Co. experienced an 81% growth in EV sales for February compared to the same period in 2023, led by strong sales of the Mustang Mach-E crossover and F-150 Lightning pickup. However, this followed Ford’s decision to cut production of the F-150 Lightning and delay or cancel some spending on EV battery production.
General Motors has also postponed EV-related investments, with CEO Mary Barra stating that the company will “build to demand” in light of slowing EV demand. Rental car company Hertz has reduced its EV fleet by a third and paused purchases of Swedish carmaker Polestar’s EVs due to low demand.
Despite these challenges, U.S. EV sales exceeded 1 million in 2023, marking the first time the industry hit that milestone. Globally, 14.2 million units were sold, a 35% increase.
“The growth of electric vehicles isn’t declining — it’s decelerating,” noted Gil Luria, managing director at D.A. Davidson & Co. “The growth of the electric vehicle market is still far faster than the internal combustion market; it’s just not as fast as it was last year.”
Luria highlighted a common sentiment among industry experts: early adopters, who are more willing to tolerate the quirks of new technology, already own EVs. However, mainstream adoption requires significant investment and time.
Barriers to Adoption
Cost remains a significant barrier to EV adoption. Despite price reductions and incentives, the average EV sold in January went for $55,353, just slightly higher than traditional vehicles, according to Kelly Blue Book. Most EVs sold are still in the premium segment, making them unaffordable for many consumers.
“We have lots of people who want to buy our car but simply cannot afford it,” Musk stated in January. “As interest rates drop and that monthly payment drops, then they’re able to afford it, and they buy the car. It’s pretty straightforward. And there are no tricks to get around this.”
Hybrid Vehicles: A Growing Market
Hybrid vehicles have emerged as a popular alternative, offering a balance between traditional gas-powered cars and EVs. Ford witnessed a 32% increase in hybrid sales last month, with CEO Jim Farley aiming to achieve a balance between EVs and hybrids over the next five years. Toyota Motor, a skeptic on EVs, sold 2.7 million hybrids last year, accounting for nearly 35% of total sales.
Stellantis, the company behind Ram, Jeep, and Dodge, announced a $6.1 billion investment to produce hybrid vehicles in Brazil. Similarly, Volkswagen Group, GM, Hyundai Motor, and Toyota have announced plans to invest in hybrid vehicle production.
