Chapter 2: Competition from China

China, having experienced a similar growth pattern to Tesla, has emerged as a significant player in the global automotive market. As EV adoption surges, it has become a vital region for Tesla's success. Previously, Tesla enjoyed strong sales in China, but local manufacturers have now taken the lead.

For instance, the Tesla Model 3 Standard Range Plus, with its 275-mile range and 0-60 mph time of 5.3 seconds, is priced around $48,000. In contrast, the base model BYD Seal—similar in size—offers over 300 miles of real-world range for only about $31,000. Furthermore, a $42,000 variant of the Seal can accelerate to 60 mph in just 3.8 seconds. Another competitor, the Zeekr 001, boasts a rapid charging capability and a range of 435 miles for the same $48,000 price point. Other brands, like XPeng and NIO, are also providing comparable options.

Given this stiff competition, it's no surprise Tesla struggled in China, missing its Q3 2022 revenue goals by $500 million and falling short of its delivery targets for Q4 2022.

To combat these setbacks, Tesla has cut prices in China, reducing the cost of the Model 3 SR+ to $33,500—a substantial drop of $14,500. While this move may make Tesla vehicles more appealing, they still remain pricier than the local alternatives.

As of November 2022, Tesla's sales in China hovered around 100,000 units monthly. If sales don't rebound, this price reduction could result in losses exceeding $1.45 billion each month. Despite the lower prices, Tesla typically earns about $9,750 per vehicle, suggesting they might be selling at a loss in this market.

It's also worth noting that Western consumers aren't receiving similar price cuts, which could frustrate buyers feeling overcharged for their vehicles.

The situation becomes more complicated with the impending arrival of these Chinese vehicles in markets like the U.S., U.K., Canada, EU, and Australia. Tesla might soon need to implement significant price reductions globally, jeopardizing their profit margins and potentially leading to a drop in stock prices.

Chapter 3: Legal Troubles and Market Position

Adding to Tesla's woes, the U.S. Department of Justice is investigating the company for potential legal violations. Tesla has marketed its Autopilot feature as if it were a fully autonomous system, though it is far from achieving that level of capability. Unfortunately, this has resulted in several tragic incidents due to misuse.

One of the reasons Tesla's stock has been so highly valued is investors' belief that its autonomous driving technology was significantly ahead of competitors. If the DOJ finds Tesla at fault, it could severely impact the company's valuation.

Currently, Tesla is lagging in the self-driving race, with companies like Waymo and GM already providing driverless taxi services, which has contributed to the struggles of Tesla's stock in the past year.

In light of these challenges, it's no surprise that Tesla's stock plummeted by 65% in 2022. While Tesla managed to sell 1.3 million vehicles that year—just ahead of Mazda's 1.2 million—it is valued at $345.75 billion, in stark contrast to Mazda's $4.75 billion. If global price cuts are necessary and if its self-driving technology fails to advance, Tesla's valuation could plummet to levels comparable to Mazda.

Musk's response to these developments has been significant; in 2022 alone, he sold approximately $22.9 billion worth of Tesla shares, suggesting he might be anticipating a downturn in stock value.

While upcoming models like the Cybertruck, Semi, and a refreshed Model 3 could potentially reverse the current trend, Tesla's historical challenges with scaling new models raise doubts about their ability to remedy the situation effectively. I sincerely hope Musk can navigate these turbulent waters—after all, if anyone can do it, it's him—but the path ahead appears challenging.