Tesla’s struggles in China and Europe could be a harbinger of upcoming pain for Elon in the US

• Bloomberg reported this week that Tesla will scale back production at its Shanghai factory.
• Tesla is selling well in both China and Europe as competitors encroach on the market.
• While Tesla has a 67% market share in the US, S&P Global predicts it will reach 20% by 2025.

What does Elon Musk have to do when electric vehicle manufacturers begin to compete for Tesla’s top spot in the US? That’s a question investors will be watching as Tesla faces fierce competition in the Chinese and European EV markets.

Bloomberg reported on Tuesday that Tesla has planned to scale down production of its famous Model Y autos grew 20% at the plant in Shanghai, one of the company’s largest locations. A Tesla representative said the report was “untrue.” Regardless, UBS and Deutsche Bank analysts say the production cut is a good move for Tesla, as the electric vehicle market in China shows signs of weakness.

Tesla’s Shanghai factory sold 100,291 Electric Car in November, setting a monthly record for the company and putting it on track to double the previous year’s output of 484,130, Xinhua News Agency, China’s state news agency, reported. Get those numbers claim a cut of up to 9% Model 3 and Model Y selling prices, Reuters reported.

But Tesla didn’t sell the most tram for Chinese customers in November. BYD, Chinese car manufacturer and Leading the global electric vehicle market is supported by Berkshire Hathaway, made, sold 229,942 EVor more than double what Tesla sold.

To boost December sales and clear inventory, Tesla’s China operations drop in price againdespite announcing on the WeChat page that they will no longer offer discounts in 2023.

Patrick Hummel, global head of automotive at UBS, thinks there will be more promotions. “Price action to stimulate further demand and or gain market share cannot be ruled out,” he wrote in a report Tuesday.

“Tesla should be cautious in production as overall local demand is under pressure,” said Emmanuel Rosner, lead automotive and automotive technology analyst at Deutsche Bank, in his report.

Tesla’s inventory crunch appears to be the result of China’s slowing economic growth. The ongoing COVID-19 lockdown and inflation are taking a toll on Chinese consumers’ pockets. The National Bureau of Statistics of China’s Purchasing Managers Index for November fell below 50% to 48%, indicating a recession.

Rosner also wrote in its report that China’s cash subsidy for electric vehicles has helped boost industry sales, but it will expire before the new year. If the government decides not to extend the subsidy, that will further weaken demand for Tesla’s Shanghai inventory.

Strong competition in China and Europe

Musk’s car company faces similar battles in Europe, the second-largest EV market, after China.

A Counterpoint report in October showed that Tesla’s second-quarter sales fell more than 50% year over year. One key factor is the supply chain problems caused by the pandemic in China.

Although Tesla opened a factory in Berlin to meet growing demand from European consumers, it just opened in March and a significant portion of its inventory is imported from China. And while Tesla’s Model Y is the second best-selling electric vehicle in Europe, it came in at number two earlier this year behind Italian carmaker Fiat. 500e model.

Globally, Tesla’s Model Y led the market last quarter, accounting for 7.5 percent of electric vehicle sales, Counterpoint reported. Models from Volkswagen, BYD and the SAIC-GM-Wuling joint venture also made the top 10.

Tesla leads the US – but for how long?

The fact that Tesla may have the world’s most popular EV model, the Model Y, but still lose in overall sales shows weakness in Tesla’s relatively slim product line, with just four models sold. Competitors like Volkswagen, Ford and General Motors all offer or plan to offer a wider range of vehicles at a variety of price points and for different use cases, while Tesla’s next addition product entry into its lineup, the Cybertruck, has been delayed several times, and the Roadster is even further away.

Competition is also reducing Tesla’s market share in the US. Tesla still dominates the country with 64% market share. But that percentage was 71% in 2021 and 79% in 2020. Now, traditional automakers like Ford and Chevrolet are gaining traction as more affordable alternatives to Tesla.

S&P Global Mobile predicts Tesla’s market share will drop to 20% by 2025. Stephanie Brinley, VP of AutoIntelligence at S&P Global Mobility, said in a statement that Tesla’s brand and sales will continue to grow. , while competitors are “constrained by production capacity.”

For now, Chinese electric vehicles will not be a significant part of the US market. Hummel said the U.S. Inflation Reduction Act, which includes tax credits for domestically manufactured electric vehicles, and discriminates against electric vehicles with parts from a related foreign entity,” said Hummel. poses some soft barriers to Chinese players.” BYD told Bloomberg it was considered establishing a the battery factory in the US but won’t sell any cars because of the law.

Like the rest of the world, the United States is facing an economic downturn. Between high inflation and the possibility of job cuts and shrinking purchasing power, a new car can be a strain for many consumers.

Obviously, Tesla will continue to sell more electric cars in the US – just so will many other automakers. And in the US, Tesla went a long time with almost no competition.

China and Europe show how Tesla will be forced to compete on price, features and build quality to win over American customers. The next five years for Tesla are likely to be much tougher than the five years before.