Chapter 1: Musk's Warning on Chinese Competition

Elon Musk, the CEO of Tesla, expressed serious concerns regarding the growing competitiveness of Chinese automakers, stating that they “will demolish” their global competitors in the absence of trade restrictions. His remarks highlight the challenges faced by Tesla in the electric vehicle (EV) market, particularly as Chinese companies strive to expand their global reach.

After BYD, a Chinese automotive group, surpassed Tesla in quarterly electric vehicle sales, Musk's comments became more pertinent. Tesla reported delivering 484,507 cars in the third quarter of 2023, exceeding analysts' forecasts of 483,173. However, BYD outperformed with sales of 526,409 all-electric vehicles during the same period, mainly due to its affordable models in China, the largest car market in the world.

“Implementation of tariffs and trade barriers will significantly influence the success of Chinese manufacturers outside their home market. They are the most competitive players in the automotive industry. Without these barriers, many global automakers could face severe challenges,” Musk remarked.

This statement underscores Musk's apprehension regarding the competitive landscape. Analysts note that he previously initiated a price war last year to attract buyers affected by rising financing costs for electric vehicles, which inadvertently impacted Tesla’s net income and stressed its financial supporters.

Musk also indicated that Tesla has reached the “natural limit of cost-cutting” with its existing product lineup. Notably, the Toyota Camry is currently priced higher than the Tesla Model 3. Plans are underway for Tesla to launch production of a compact crossover, known internally as “Redwood,” which will be priced lower than the Model Y to compete with more affordable offerings from rivals next year. Sources familiar with the matter, who requested anonymity, shared insights with Reuters.

Additionally, Musk announced that Tesla intends to begin production of its next generation of electric vehicles in the latter half of 2025 at its Texas facility. In Europe, a new model priced at €23,000 is expected to be released in 2023, but the rapid advancements of Chinese EV manufacturers pose a significant threat.

The European Commission initiated an investigation in October to determine if Chinese electric cars are unfairly benefitting from state subsidies, which could further complicate trade relations between China and Europe. Beijing has denounced the inquiry as “pure protectionism.”

Sources indicate that the investigation will focus on major players like BYD, Geely, and SAIC within the electric vehicle sector.

Meanwhile, Tesla's shares plummeted by 12% on Thursday, dropping to $182.63. Musk's forecast of a slowdown in electric vehicle sales growth this year, coupled with ongoing price reductions that have already squeezed profit margins, has unsettled investors. This decline represented the most significant loss in market value for Tesla in a year, erasing approximately $80 billion from its market capitalization. Consequently, the stock's downturn this month has resulted in a staggering $210 billion loss in total market value.

While Tesla aims to roll out a new generation of more affordable electric vehicles—set to be produced in Texas starting mid-2025—Musk cautioned that growth in sales would likely be “significantly lower.” However, he warned that the advanced technology in the new models could pose challenges to production scalability.

“Tesla's challenge lies in the fact that expanding business operations may lead to considerable declines that could further impact net income, especially as competition from BYD intensifies in China and grows globally,” explained Michael Hewson, an analyst at CMC Markets.

Chapter 2: The Future of Electric Vehicles

As the electric vehicle market evolves, the strategies employed by manufacturers will be crucial in determining their success in both domestic and international arenas.