Tesla's Lead Shrinks to $83B Over Toyota Amid Challenges

Key Takeaway

• Tesla's market value lead over Toyota has shrunk to $83 billion, with a potential first revenue decline in four years and a 40% drop in operating earnings.
• Tesla's stock fell 43% for the year amid price cuts, layoffs, and a Cybertruck recall affecting investor confidence.
• Shareholders are concerned as Tesla may shift focus from launching an affordable electric car to developing self-driving "robotaxis."

Market Value Shift

Tesla Inc., once nearly $1 trillion ahead of Toyota Motor Corp. in market value, has seen its lead diminish significantly. Ahead of its quarterly earnings report, Tesla's advantage over Toyota narrowed to approximately $83 billion. This anticipated report is expected to show Tesla's first revenue decline in four years and a 40% drop in operating earnings. Tesla's peak market value lead over Toyota was $939 billion in November 2021, following a substantial order from Hertz Global Holdings Inc. However, Hertz's subsequent reduction in Tesla purchases and the impact of CEO Elon Musk's price cuts have influenced Tesla's valuation. Meanwhile, Toyota's cautious approach to fully electric vehicles, favoring gas-electric hybrids, has seen its strategy bear fruit as EV sales growth decelerates.

Tesla's Challenges

Tesla's stock has been under pressure, with shares reaching a 15-month low ahead of its earnings report. The company's stock fell for seven consecutive days, exacerbated by further price reductions on its most popular electric vehicles and its premium driver assistance system, marketed as Full Self-Driving (FSD). These price cuts, alongside concerns over first-quarter deliveries, layoffs, and a Cybertruck recall, have contributed to a 43% decline in Tesla's stock for the year. Tesla's recent voluntary recall of 3,878 Cybertruck vehicles due to a "trapped pedal" defect and the announcement of workforce reductions have added to the company's challenges.

Strategic Shifts and Investor Concerns

Tesla shareholders are bracing for potentially the company's worst quarterly performance in seven years, amidst slowing demand and a competitive price war. Reports suggest Tesla may be deprioritizing the launch of a more affordable $25,000 electric car, unofficially known as the Model 2, in favor of focusing on self-driving "robotaxis." Elon Musk has emphasized the importance of autonomy, announcing the launch of a Tesla robotaxi for August 8. This strategic shift has sparked debate among investors regarding Tesla's future direction, whether it will focus on becoming a large-scale manufacturer or a specialized provider of autonomous technology.

Street Views

• David Wagner, Aptus Capital Advisors (Neutral on Tesla):

  "Tesla has been a master of understanding that the market favors narratives over the short term... But more recently, as the tide retreated, the company has started to show that the overall growth profile may not be as robust as originally thought."