Tesla, the electric car manufacturer led by Elon Musk, recorded a significant 12 percent plunge in its shares. The plunge was triggered by an announcement from the company, warning investors that its sales growth in 2024 is expected to be considerably weaker compared to the previous year. In light of that loss, Elon Musk, the chief executive of Tesla, faced a staggering $18 billion dent in his net worth on Thursday, dropping him out of the exclusive $200 billion club.
Tesla’s stock freefall
Thursday marked the sharpest loss for Tesla’s stock in over a year, wiping out a staggering $80 billion of its market value. This dramatic fall contributed to a total monthly market capitalization loss of about $210 billion.
Elon Musk’s fortune is intricately tied to Tesla’s shares as the majority of his wealth is linked to the electric carmaker’s performance. After a remarkable surge of 129.8 percent in 2023, Tesla’s stock closed at $182.63 on Thursday, a staggering decrease from its peak in November 2021 at $407.36.
Tesla’s warning
While posting fourth-quarter earnings on Wednesday, Tesla warned of a significant deceleration in vehicle sales growth for 2024. The company highlighted that its vehicle volume growth rate might be notably lower than the impressive figures it achieved in 2023. The company’s financial performance faces scrutiny as it navigates a landscape due to competitive pricing, high research and development (R&D) spending, and challenges associated with launching new models like the Cybertruck.
In response to tough market conditions, Tesla has been strategically cutting prices in key markets worldwide, including Europe and China. The move is a proactive response to fierce competition from Chinese counterparts like BYD and traditional automakers in the growing electric vehicle market.
Financial performance
Tesla cited higher R&D spending, coupled with costs linked to increasing production of the new Cybertruck, as factors impacting its profit margin. Persistent high borrowing costs, driven by global efforts to curb inflation, have also added to the financial headwinds facing the company.
Despite challenges and warnings, Tesla reported a 115 percent jump in fourth-quarter net profit, surpassing $7.9 billion. This marked the company’s 18th consecutive profitable quarter, demonstrating resilience in the face of market uncertainties. However, the company warned investors about the threat from Chinese competitors. Moreover, Tesla announced plans to start production of a new lower-cost vehicle in the second half of the next year.
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Weakening demand
Tesla’s warning of a sales slowdown marks a notable shift after years of robust growth. This caution reflects broader concerns about weakening global demand for electric vehicles, with Tesla now grappling with the complexities of maintaining its market leadership.
While Musk faced a significant setback, he retains the title of the world’s richest person with a net worth of $198 billion. As Tesla’s shares continue their downward trajectory, the company has now seen a loss of more than a quarter of their value in the early months of this year. This performance raises questions about Tesla’s ability to weather the storm and adapt to the evolving dynamics of the electric vehicle industry.
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