Investors are reconsidering Tesla (TSLA) after thinking that it would rebound after a weak Q1 performance in 2024. In addition to posting output exceeding demand, Reuters reported that Tesla is allegedly scrapping its low-cost electric vehicle launch.
CEO Elon Musk planned to launch an affordable EV for the masses. However, the plan did not envision a U.S. and China trade war. China’s collapsing real estate market is hurting its consumers. Domestic Chinese EV firms – Li Auto (LI), Xpeng (XPEV), and Nio (NIO) – need to sell their EVs outside of the country. BYD (BYDDF) is an even bigger threat. It already has an inexpensive EV that it wants to sell to the world.
Tesla does not have strong enough demand for its existing models. Launching a Model 2 for $25,000 would prove too risky. The firm is better off realizing lower operating costs for the Model 3 and Model Y. This would prevent competitors from taking the mid-tier market.
To keep investors optimistic, CEO Musk announced that it would unveil a Tesla Robotaxi on 8/8 (August 8). This initiative is questionable. It might steer the company’s attention away from its core EV market just as competition intensifies.
Your Takeaway
Chinese EVs are not yet a threat to Tesla outside of China. However, the valuation of TSLA stock needs to fall to reflect the uncertainties ahead.
