Best Comment On Tesla Demand Challenges I’ve Seen

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I don’t often see a standalone tweet and think, “Wow, that’s an excellent long comment and analysis — that could be an article.” However, this morning, I did. The commentary comes from a longtime Tesla follower, fan, and shareholder. However, he’s an open minded and critical one when need be. In fact, among people who only tweet about Tesla, he seems to be one of the most balanced in positive and negative (congratulatory and critical) commentary on the company and on Elon Musk. The person I’m referring to goes by the name James Cat (@TSLAFanMtl) on Twitter. The following is his tweet on Tesla demand growth and the struggles it faces:

“Seen some discussion lately about Elon’s impact on Tesla demand and subsequent impact on price and profit.

“Here is my take.

“All of this stuff is very hard to isolate and quantify in a silo. We do have some data that shows Tesla brand equity has taken a hit since Twitter. Imo this is a factor, but not THE factor, that explains it. And it’s not interest rates, either. Interest rates affects all brands equally and yet despite the interest rate environment, both market volumes and prices are up. Consumers have broadly accepted to pay more — just not for Teslas.

“In order of decreasing importance, here is why I think Tesla has had to decrease prices so aggressively relative to the market:

“1. Tesla greatly expanded its supply in 2023.

“Tesla’s valuation and mission is based on growth. It’s harder to grow from a base of 1.3M than from a base of 0.9M with the same vehicle lineup. Unless demand increased organically relatively to 2022 levels, Tesla would need to decrease price to move that extra volume. Demand has not increased organically nor has it increased enough to offset the need to cut price.

“This is especially important because Berlin and Austin are operating well under capacity. Factories operating under capacity generate excessive costs.

“2. EV early adopters have been satiated.

“The consumers that haven’t yet made the jump to EVs have hesitations. They are concerned about range, charging and are under the illusion that EVs are ‘expensive.’ They don’t know what tax credits/federal/state incentives exist to help lower the cost. They don’t understand the cost of ownership concept.

“All of this can be fixed with an aggressive, broad-based advertising campaign and PR campaign — in my opinion — because none of those things are actual concerns once people understand the issues.

“3. Indirect competition…in China.

“Tesla has no direct competition for 3/Y. Anywhere. It’s not even close. But…Tesla does have EV competition in China both above and below the 3/Y price point. This has caused a bit of a squeeze on 3/Y in China — forcing price down a bit there — but also, importantly, it has increased Tesla’s need to export. This, in turn, has increased supply in other parts of the world — and we go back to point #1 — too much supply relative to demand.

“4. And finally, Elon has alienated a large part of Tesla’s core demographic — educated, left-of-centre progressives. Say what you want about how people shouldnt base their purchasing decisions on company CEOs. Fine. Elon is more than Tesla’s CEO; he is also the face of the brand. Like it or not, his brand and Tesla’s brand are linked, for better or worse. The Twitter acquisition and Elon’s use of it since has been the worst thing to happen to Tesla’s brand…ever. There are a number of data points that show this and if you’ve been following me for a while, you would have seen these by now.

“So that’s where we stand with Tesla and that has explained what happened in 2023. What about 2024? I am glad you asked. I am starting to work on a 2024 forecast and will share in due time.”

There was one reply that caught my attention as well, including his response to the reply. Farzad responded: “Great write up. My point with 4 is that even though this is true, we aren’t accounting for the opposite end of the spectrum, even if these folks are generally less affluent and more conservative in their purchases. These folks are now paying attention that traditionally never were.

“There’s also the silent majority that no one is talking about, which drove volume in 2023, and has caused the brand to be the most searched in 2023 globally and in the US after being nowhere to be found. Left wing progressives being angry at Elon IMO is not enough of a variable to constitute ‘Elon being active on X is bad’. Giving Tesla’s core historical demographic too much of a weight completely ignores the fact Tesla’s long term demographic is 80% of the global population that is looking for a transportation system.”

And here is the response to that from James: “There have been a few reports that have showed that the gains Tesla has made on the right have not offset the losses on the left. And other reports that showed that of all brands, Tesla’s customer base was the furthest left. This is without question a net loss. And unfortunately it was all unnecessary.”

It’s an interesting discussion, and one that has been going on for a long time. I appreciate people like James pushing through the tribal mud to have real conversations about this stuff. Unfortunately, I don’t think the core matters are going away anytime soon and I think they will remain major factors of concern for Tesla as far as the eye can see. But that’s where we are.

Chime in with your own thoughts down in the comments.

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