To The Moon

Yesterday, $Tesla Motors(TSLA)$ announced that it would lay off more than 10% of its workforce, affecting 14,000 employees.

This isn't the first time Tesla has done this. In 2017, 2018, 2019, and 2022, they cut 2%, 9%, 7%, and 3% of their staff, respectively.

Despite the repeated layoffs, Tesla's workforce has doubled in the last three years.

But here's the kicker: despite this growth, Tesla's sales are sliding.

In the first quarter of this year, Tesla's deliveries fell 8.5% year-on-year to about 386,800 units, a drop of over 20% from the previous quarter. This is far below analysts' expectations of 449,000 units, marking the largest miss in Tesla's recorded history.

So, what's going on with the once-mighty Tesla?

1.Three major markets

China is the world's largest new energy vehicle market, with a market share of 63.5% in 2023.

With the rise of new players like $NIO Inc.(NIO)$ $NIO Inc.(NIO.SI)$ $NIO-SW(09866)$ $XPeng Inc.(XPEV)$ $XPENG-W(09868)$ $Li Auto(LI)$ $LI AUTO-W(02015)$, Tesla is facing tough competition in China. Its sales in the first quarter of this year were only flat compared to the same period last year, losing its former high-growth momentum. And the pressure is expected to continue.

Moving to Europe, countries there have been cutting subsidies for new energy vehicles over the past year. For instance, Britain and Germany have scrapped their subsidies, while those in the Netherlands have been scaled down. As a result, European carmakers have been adjusting their electrification targets.

The US market is also feeling the squeeze. High inflation and subsequent high interest rates have taken a toll on Tesla's sales. During last year's third-quarter earnings call, Elon Musk expressed his deep concerns about the high-interest-rate environment in the US.

With problems in all three major markets for new energy vehicles, it's not hard to understand why Tesla's sales are crashing.

2.Stock price and volume

Following the announcement of layoffs, Tesla's stock price tumbled 5.6% yesterday, dragging down Chinese rivals as well. NIO's Hong Kong-listed shares fell 10.2%, XPeng dipped 5.6%, and Li Auto declined 4.9%.

If you look closely at the stock prices of NIO, XPeng, and Li Auto, they're even more gruesome. NIO has plunged 59.4% this year, hitting a new low since its Hong Kong listing. XPeng is down 51%, and Li Auto has shed 25%.

The reasons for the collapse of NIO, XPeng, and Li Auto are also tied to sales. NIO and XPeng have been stuck at around 10,000 monthly sales for years, unable to make a breakthrough and escape their huge losses. For instance, NIO lost 20.8 billion yuan last year, while XPeng lost 10.4 billion yuan.

Li Auto, while profitable last year with earnings of 11.7 billion yuan, has seen its monthly sales start to decline. In March this year, its sales were only 29,000 units, far below management's expectations of 50,000.

Coupled with the failed launch of its new model MEGA and the competition from Huawei's automotive business, it seems like the good times for Li Auto may also be coming to an end.

3.Valuation

From a valuation perspective, Tesla's PE ratio is still sky-high at 62 times, much higher than traditional carmakers. Considering the company's negative income growth rate and the potential impact of price wars on profits, this valuation level is purely based on dreams.

NIO and XPeng, which are yet to turn a profit, are valued at 0.9 times and 1.5 times their sales, respectively, still higher than traditional carmakers.

4.NIO, XPEV & Li crash!

If NIO and XPeng can't seem to break through that sales barrier, investors are going to start looking at profits. After all, who can sustain losses of billions every year?

Right now, NIO will put its hopes on second brand, LeDao. They're expected to release the LeDao L60 model in May, aiming to compete with Tesla's Model Y, priced between 200,000 and 300,000 yuan. Deliveries are expected to start in the third quarter.

Even though NIO's monthly sales haven't budged in the past few years, they're still churning out new models like there's no tomorrow. First the ET series, now a second brand? The L60 could easily fit under the NIO umbrella. A second brand just adds unnecessary marketing expenses and consumers have to get used to it all again. That's all money down the drain.

And let's not forget about the ET9 they released last year. That 800,000 yuan, four-seat administrative flagship? The pricing and positioning are both a recipe for disaster. If sales don't pick up, ET9 won't be profitable. NIO should take a page from XPeng's book and stick to one successful series. It saves on design costs, maximizes production line efficiency, and boosts profitability.

At present, the competition of new energy vehicles has intensified, and the price war has been in waves, how are NIO and XPeng going to survive without deep pockets?

The bottom line is, if sales don't improve, NIO and XPeng need to tighten their belts, focus all their energy on creating hit models, cutting costs, and getting to a point where they can finance themselves. Don't count on external funding.

The longer they wait, the more passive they'll become. Until sales turn a corner, don't even think about bottom-fishing. These companies, with no growth potential and huge losses, have no bottom in sight!