Slammed by COVID lockdowns and semiconductor shortages, Tesla suffered an 18% drop in sales during the second quarter of this year — and that cost the Texas-based manufacturer its envious role as the world’s leading EV brand.
While Tesla hopes to regain momentum during the second half of 2022, it faces a number of challenges moving forward. The U.S. manufacturer has delayed the launch of several new products, including the much-ballyhooed Cybertruck, even as competitors ranging from General Motors to China’s BYD start flooding the market with new offerings. That is expected to lead to a sharp downturn in Tesla’s market share in the coming years, according to many analysts.
Tesla reported mixed results during the second quarter, much of that the result of lockdowns in Shanghai resulting from an unexpected surge of COVID-19. That led to a weekslong closure of its assembly plant in China’s most populous city. Meanwhile, operations have gotten off to a rocky start in Tesla’s new assembly lines near Austin, Texas and Berlin, leading CEO Elon Musk to describe them last month as “money furnaces.”
By the numbers
Even so, “In the second quarter, we produced over 258,000 vehicles and delivered over 254,000 vehicles, despite ongoing supply chain challenges and factory shutdowns beyond our control,” the company said in a statement. “June 2022 was the highest vehicle production month in Tesla’s history.”
The quarter, in which Tesla produced a total of 258,580 vehicles, saw the Model 3 sedan and Model Y SUV remain Tesla’s best sellers, with a combined 238,533 deliveries. The earlier Models S and X accounted for a modest 16,162 deliveries. At a combined total of 254,695 EVs, that was a roughly 18% decline from the 310,000 vehicles Tesla delivered during the first quarter of 2022 — but up 26% from the second quarter of 2021, when it delivered 201,250 EVs.
Looking at the first six months of this year, Tesla thus managed to deliver about 564,000 vehicles. But that fell well behind its now lead competitor, the Shenzhen-based BYD. Backed by mega-investor Warren Buffett, BYD has rolled out a number of new vehicles during the past year and they paid off handsomely, the brand reporting a stunning 300% year-over-year jump in sales, for a total of 641,000 battery-electric vehicles since the start of 2022.
A battle royale
BYD was lucky in that none of its three factories operated in cities impacted by China’s second-quarter COVID lockdowns. The question is whether BYD will be able to maintain its lead during the second half of 2022 if Tesla’s Shanghai plant is able to operate without interruptions going forward.
But BYD could maintain another claim to fame. It is now the world’s second-largest producer of automotive batteries, having surged past South Korea’s LG this year.
While Tesla expects to regain momentum in China, it is struggling to get its new plants in Berlin and Austin, Texas up to speed — a problem resulting from a variety of factors, including chip shortages. That led CEO Musk last month to warn those plants have become “money furnaces” that will continue to cut into Tesla earnings for at least the near future.
“It’s really like a giant roaring sound, which is the sound of money on fire,” Musk added.
Tesla has other challenges to worry about.
The annual Car Wars study released by Bank of America Securities last week gave other reasons to worry. It forecast that Tesla’s share of the U.S. EV market will plunge from the current 75% to just 11% by 2025. That would be the result of having a flood of new entries not only challenge products like the Models S, X, 3 and Y, but also enter new EV market segments.
There are now three all-electric pickups in showrooms — the GMC Hummer EV, the Rivian R1T and the Ford F-150 Lightning — even as Tesla continues delaying the launch of the Cybertruck. Meanwhile, Musk earlier this year said Tesla has indefinitely delayed development of new entry models slotting in below products like the Model Y which currently starts at $65,500. GM’s Chevrolet brand plans to bring an EV version of the Equinox in at just over $30,000, and has cut the price of the 2022 Bolt EV to just under $27,000.
“Tesla didn’t move fast enough,” to head off these competitors said BoA chief analyst John Murphy, adding that was a “big miss on (Musk’s) part.”
In a separate advisory to investors, BoA warned that Tesla could have problems getting its new plants up to speed, calling its past history “choppy.” It also warned that the automaker needs to update or completely remake its existing line-up as well as bringing out new products like the Cybertruck. It will need to convince investors and the financial markets that it has a solid plan worthy of new infustions of capital.