Electric vehicle sales are on fire, and the competition is heating up, particularly from Asian carmakers. The number of electric cars on the world’s roads was about 16.5 million by the end of 2021, triple the amount in 2018, according to IEA.org. However, on July 2, 2022, Tesla announced a decrease of deliveries in the 2nd quarter – of 254,695 vehicles, with production of 258,580. That was down -17.85% from the 1st quarter of 2022, and was despite having vehicles from Austin starting delivery in April 2022. Tesla now has factories producing in California, Shanghai, Berlin and Texas.
2Q 2022 marks the first time that Tesla has gone backwards in deliveries and revenue. 1Q 2022 revenue was $18.756 billion, with net income of $3.28 billion. Will 2Q 2022 revenue drop below $15 billion?
Clearly supply chain bottlenecks were the culprit – something that investors were keenly aware of. Before the announcement, Tesla stock had already dropped by half from a high of $1243.49 (Nov. 4, 2021). Keep reading for the main culprit behind the share price weakness. This week there has been a mini-rally, from a low of $655 on Tuesday to $733.63 today. Is the worst behind Tesla? Should investors buy in at the discounted price?
As Elon Musk said in the 1Q 2022 earnings call, “We have a very long wait list. We’re obviously not demand limited. We are production limited… very much production limited.” As a result of having a wait list for some vehicles that can exceed a year (for many vehicles it is at least a few months), Tesla is increasing the prices of their vehicles. The question is, “Will increased demand and a weaker economy change the equation?” When the family budget gets tightened, will replacing or upgrading the family car be one of the first things to get jettisoned? Will lower priced EVs from Vinfast and other carmakers woo customers away from Tesla?
The Asian Competition
The Chinese automakers are increasing sales at a much faster clip than Tesla in China – the largest EV market in the world. About half of the EVs in the world are in China. Chinese EV sales were 3.3 million in 2021 – almost tripling the sales of 2020. By comparison, sales in Europe were 2.3 million, with just 630,000 EVs sold in the U.S. in 2021.
XPeng competes with the Tesla 3, while Nio competes with Tesla’s premium vehicles. Li Auto offers a bargain EV. Nio’s deliveries were slightly higher than 1Q (vs. Tesla falling off by -18%). However, Nio’s June deliveries were outstanding, at 12,961 – a new monthly record that was 60.3% higher than last year. Nio sells cars in Norway, with expansion plans into other European and North American markets.
Li Auto saw an increase in June deliveries of 63.2% year over year, while XPeng’s June 2022 deliveries increased by an eyepopping 133%. With delivery of 34,422 smart EVs, Xpeng is the No. 1 emerging auto brand in China. Tesla is still #1 in EV sales in China, with over 60,000 cars sold in the 2nd quarter and about ¼ of the company’s revenues coming from China. XPeng also sells cars in Norway, and is expanding into Sweden and the Netherlands.
Vietnam’s Vinfast Launches in the U.S.
Vinfast’s F8 SUV starts at $41,000, compared to Tesla’s Model Y at $56,000 (base). Additionally, Vinfast qualifies for the Energy.gov tax credit of up to $7,500. (Tesla no longer qualifies.) There may be personal reasons to want a Tesla over the Vietnam-based Vinfast, including hometown pride of purchasing from a U.S. automaker that manufactures in the U.S. and the fact that this is Vinfast’s first go of it. However, the safety ratings of Vinfast vehicles, range, warranty and other key indicators are highly competitive.
Tesla’s P/E, which is 94, is outlandish. The emerging EV makers are still cash negative, as they ramp up production to meet their accelerating demand. So, comparing P/Es won’t work to see which stocks are on sale. Below is a comparison of price-to-sales. As you can see, the Chinese automakers all have a lower price/sales ratio than Tesla. (Vinfast is not yet publicly traded.)
Incidentally, guess who was the top seller of Tesla when it hit the high of $1243? Elon Musk began selling on Nov. 8, 2021 (four days after it hit its high), and has cashed in over $23 billion since that time. There has also been consensus insider selling, from the company’s CFO, COB & SVP.
Write Down of Bitcoin?
Tesla’s CFO Zachary Kirkhorn is known professionally as the Master of Coin. However, how big of a fair market value write-down will Tesla have due to the crypto crash? According to the company earnings reports, Tesla purchased $1.5 billion of Bitcoin in the 1st quarter of 2021, when Bitcoin’s price ranged between $30,000 and $61,000. Bitcoin’s value on June 30, 2022 was under $20,000.
Tesla remains the world’s leading EV car maker. However, even with the share price down 41% from its 52-week high, the company retains a very lofty valuation. The Chinese EV makers have seen their share prices dragged down with all Chinese equities. However, with their stellar delivery performance, could these companies bask in summer gains?
Vinfast vehicles were designed in Italy and score high in safety tests. Will consumers be seduced by the tax credits, lower prices and availability? General Motors has announced an all-electric future and has plans to put millions of EVs on the road, in partnership with Honda, by 2027. (Over 90% of the GM and Ford sales are still gasoline-powered.) How big of a dent will all of these competitors make in Tesla going forward? Will the transition from gas guzzlers to EVs be a broad enough market for everyone to win? Will the industry laggard (Ford) find a way to gain, instead of lose, market share?
Clearly, this is a space worth keeping an eye on, particularly as the stakes remain high in a world facing supply chain bottlenecks and potential recessions.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.