To The Moon

$Tesla Motors(TSLA)$ 's sales collapsed in the first quarter, delivering only 386,800 vehicles, an 8.5% year-on-year decline, and significantly lower than analysts' expectations of 449,000.

Tesla blamed it on three reasons:

• The Model 3's upgrade

• The shipping delays due to the Red Sea conflict

• The shutdown at German factory caused by arson attack

But those are just smokescreens.

In my opinion, the real reasons for Tesla's sales slump are weak demand, revenue slide, and intensified competition.

1. Weak Demand

European countries started cancelling or reducing electric car subsidies last year.

For instance,

Germany scrapped its subsidy policy on December 17th, where consumers could get 4,000 to 6,000 euros for buying new EVs, accounting for about 10% of the vehicle's price.

In the Netherlands, the subsidy will be reduced by 400 euros to 2,550 euros from 2024 for new BEV vehicles purchased by individuals under 45,000 euros.

As early as last June, the UK has announced the cancellation of 1,500 pounds/electric car subsidy scheme.

France raised the ceiling on subsidies, but excluded EVs made in China.

Meanwhile, European and American carmakers are dialing back their new energy transition goals.

$Mercedes Benz Group AG(DMLRY)$ scrapped its goal of going fully electric by 2030 and now aims for 50% of its sales to be EVs or hybrids.

$General Motors(GM)$ recently postponed the production of key EV models and an electric transformation investment.

Audi planned to launch 10 pure EVs by 2025, but now they're shifting their focus to fuel-efficient and plug-in hybrid models, taking a flexible approach to EVs.

$Ford(F)$ also postponed a $12 billion new energy R&D plan last year, cutting EV production and adjusting profit margin targets.

2. Revenue Slides

Tesla's revenue in Europe started to slide in Q4 last year, down 6.1% year-on-year, a rare occurrence.

And it's not just Europe. Tesla's sales in the US are also tanking. Revenue in Q4 fell 1.7% year-on-year, after previously growing at double-digit rates.

Musk blamed the Fed's interest rate hikes for the decline in US sales, but multiple agencies predict a 6% sales growth this quarter, up from 14.9 million last year.

Other carmakers are thriving. BMW's BEV sales in the US grew 63% in Q1. $Toyota(TM)$ 's North American sales rose 21.8% in March, and $Honda(HMC)$ 's US sales grew 17.3%.

Clearly, Tesla's sluggish growth is a self-inflicted wound, not a market trend.

3. Intensified Competition

In addition to the deterioration of the competitive landscape of Tesla, the EV market is being cannibalized by hybrids, especially since EV charging infrastructure is still spotty. Hybrids offer fuel efficiency and similar prices to traditional cars, attracting loads of consumers.

This is especially evident in China. BEV brands like $NIO Inc.(NIO)$ $NIO Inc.(NIO.SI)$ $NIO-SW(09866)$ and $XPeng Inc.(XPEV)$ $XPENG-W(09868)$ have hit a sales ceiling, while hybrid-focused $Li Auto(LI)$ $LI AUTO-W(02015)$ is outpacing them.

Even $BYD Co., Ltd.(BYDDF)$ $BYD COMPANY(01211)$ , the world's largest new energy vehicle maker, sold 300,000 vehicles in March, but only 140,000 were BEVs. Hybrids accounted for over half!

And it's not just demand that's soft. Tesla's competition is getting fierce. According to the China Passenger Car Association, Tesla's sales in China in March were only up 0.2% year-on-year.

Meanwhile, the $Xiaomi Corp.(XIACY)$ $XIAOMI-W(01810)$ Su7, which competes with Tesla's Model 3, has been a hit in China since its launch in March. Its 2024 production capacity is already fully booked, with over 120,000 pre-orders!

All this pressure on Tesla's sales, and yet they've still raised prices when other carmakers are slashing them.

In summary

Whether it's Europe's subsidy cuts or intensified competition, Tesla is in a tough spot. And with a PE ratio still hovering above 60, the pressure is really mounting.