Tesla’s Impossible Comeback

Quick Read

• Tesla’s stock has dropped 21% this year while the S&P gained 12%, extending years of steady underperformance against the broader market.

• China’s BYD overtook Tesla as the world’s largest EV maker, leveraging government subsidies and lower production costs to erode Tesla’s global market share.

• Musk’s robotaxi and Optimus robot vision has failed to convince investors or analysts skeptical of his AI-driven future for Tesla.

There was a time when Tesla (NASDAQ: TSLA) was America’s hot stock. The Thomas Edison of his age, Elon Musk, created a path forward, especially for EVs. This wasn’t limited to the US. Tesla had made impressive inroads across China, the world’s largest EV market. It even made advances in Europe, which was not a place for early adopters. That has changed recently.

But look at the numbers. Tesla’s stock is down 21% this year. The S&P is 12% higher. Over the last year, Tesla’s stock is up 8%. The S&P is up 20%. Over the last five years, Tesla’s stock is up 46%. The S&P rose 69% over that period.

Tesla had some success with its two early models, the Model S and Model X. They were high-performance EVs with equally high prices. When Tesla introduced the Model 3 and Model Y, it offered vehicles priced closer to $50,000. These price points helped cause a surge in Tesla’s sales.

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Over the last three years, Tesla has faced strong headwinds. First, US adoption never met the goal set by the federal government and some of America’s large car companies. Additionally, China’s EV companies began to grow rapidly, partly because of government financial support. China’s BYD became the world’s largest EV company and succeeded in parts of Asia, South America, and, more recently, Europe. Tesla didn’t just face competition; it faced lower-cost production companies that made very good vehicles. Tesla’s market share in China began to fade.

Tesla could never overcome US car buyers’ objections to EVs. Most had ranges of only 300 miles. Furthermore, charging stations were too few. In some cities where they were available, lines often formed, and vandalism was occasional.

Cheap gas prices, until recently, made Americans happy to stay in the fossil fuel-powered vehicle market. People could at least find gas stations easily.

Elon Musk has not been able to sell Tesla’s future very well. It is a world in which people do not have to drive their cars at all—AI will do it for them. The Robotaxi is envisioned as the preferred way for Americans to travel around cities, and the world will have hundreds of millions of robots. Musk’s Optimus robot is intended to lead in this market. However, many analysts of the future of robotics do not share Musk’s enthusiasm.

Musk does not have a clear way to claw back his EV market share, and investors are not buying into his dreams.

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