Elon Musk, CEO of Tesla.Tayfun Coskun/Anadolu via Getty Images
- Tesla finally has to deal with the slowdown in electric vehicles.
- The electric vehicle company cannot rely on hybrid and gasoline cars like its competitors.
- Musk blamed the industry’s prioritization of hybrid vehicles for the poor first-quarter performance.
Tesla is finally facing a decline in demand for electric vehicles, and CEO Elon Musk’s tactics will likely look different than those of his automotive industry peers.
Both Ford and GM beat analysts’ expectations for the first quarter thanks to cost cuts and stronger demand for gasoline-powered cars. Tesla, on the other hand, fell short of the same expectations in the first three months of the year, with significant declines in sales and deliveries.
Over the past year, demand for electric cars has fallen, slowing the rapid growth of battery-powered vehicles that form the basis of many of the auto industry’s plans for the next few years. This has led to strategy changes at companies like GM and Ford that are starting to pay off.
After years of making huge investments in electric vehicle technology, GM CEO Mary Barra told investors last week that the rapid pace of spending was beginning to slow.
“Our focus has shifted back to increasing free cash flow through improved profitability and capital discipline, finding ways to spend less while achieving the same results while always remaining focused on the customer,” Barra said.
GM’s high profit margin of 10.6% in North America – supported by the company’s lucrative pickup truck business – fueled the company’s significant profit increase.
Electric vehicles, on the other hand, are still not profitable at all for GM or other traditional automakers. Ford, which breaks down its electric vehicle business, reported a loss of $1.32 billion in the segment in the first quarter.
Tesla expects electromobility to slow down
The stark difference between Tesla’s first-quarter results and those of its traditional rivals is just the latest sign that the electric vehicle slowdown is finally catching up with Musk’s electric car company.
Until earlier this year, Musk’s electric car maker was able to use its impressive profit margins to lower prices for a new group of more fuel-efficient electric car buyers. Sales of the cheapest Teslas, the Model 3 and Model Y, continued to rise throughout 2023, and the company almost reached its ambitious goal of delivering 2 million cars last year despite pressure on the segment.
But now the tide has turned, as traditional automakers are able to enter a new, popular segment not occupied by Tesla: hybrid vehicles.
Without hybrid and gasoline cars to fall back on, Tesla’s approach to the EV slowdown will instead be based on cutting production costs and finally bringing a long-awaited, affordable model to market. These are lofty efforts that are unlikely to take off overnight.
This seemed to anger Musk, who even blamed the industry’s newfound commitment to hybrid vehicles for some of Tesla’s dismal earnings results last week.
“While this is positive for our regulatory lending business, we prefer that the industry continues to advance electric vehicle adoption, which is consistent with our mission,” Tesla wrote.