There's only one way left to fix Tesla: fire Elon Musk
Steve Granitz/FilmMagic via Getty Images; Tesla; Alyssa Powell/BI
Tesla is on the brink again. Sales are slowing even after the company slashed prices. The company is laying off 10% of its workforce — 14,000 workers from Shanghai to San Jose, from the factory floor to the executive suite. The company had to recall every single Cybertruck it shipped. And Tesla's position in China, a country that has become critical to its future, is getting shakier.
There's only one person to blame for the company's shambolic state and only one person whose exit could save Tesla: Elon Musk. For the past few years, Tesla has looked unstoppable, but during those high times, Musk failed to implement any strategy that would insulate the company from what has become a violent global electric-vehicle price war. The company is incinerating cash, losing market share, and holding more aging inventory than ever before.
Tesla reported its first-quarter earnings on Tuesday and missed expectations across the board, even though Wall Street was already expecting the worst. Earnings per share came in at $0.45, lower than analysts' expectations of $0.52. Free cash flow fell a stunning 674% as Tesla focused on AI research and making capital improvements. Gross profit fell 18% from the same time a year ago, and gross margins fell from 19.3% to 17.4% over the same period. If Tesla the company were a car, this is when you start to hear it make a rattling sound.
The company's problem isn't a matter of getting through "production hell" or "delivery hell" on a new model, which Tesla has been able to survive. Hell is, at the very least, a location. Tesla's problem is that it has no clear direction. It doesn't matter how much cash a company has on hand if it's blowing it on products that aren't ready to scale — like a robotaxi. Or cars that no one wants — like its dated models. Investors want to see a concrete plan for a whole new fleet of Teslas made for a leaner, meaner EV market.
Musk seems to understand at least that much: Earlier this month he denied a Reuters report that the company had scrapped plans for the Model 2 — a $25,000 Tesla for the everyman. This is the car the market wants, but on the company's post-earnings conference call, Musk only mentioned vague plans for speeding up the production process. Maybe that's enough if you're new around here, but if you have been following Tesla at all over the past decade, you know those sorts of timelines are to be taken with a grain of salt. Even Musk's most loyal shareholders — like Ross Gerber of investment firm Gerber Kawasaki — were dubious. In an interview with Bloomberg on Tuesday after Tesla's report, Gerber said that he "can't rely" on what the company says about timelines anymore. And on the conference call Musk spent more time talking about his far-off vision for an Uber-like robotaxi fleet than the next car he can sell with technology that exists now.
"I'd say at least eight to nine years before they get a robotaxi working," Tu Le, the founder of the electric-vehicle consultancy Sino Auto Insights, told me in a recent interview. "I think they'd argue that they already made it. But I'm thinking about the best-case scenario. And I'm being very optimistic.
Musk does not have eight or nine years to save Tesla. On one side of the world, competitors in China can make cars at a much lower cost. On the other side, legacy automakers are leaning on their combustion-engine and hybrid car sales to make it through the slowdown in demand for electric cars. If the Chinese market is a rock, then Western markets are a hard place. Tesla is caught in between. The company needs a serious leader with practical ideas — no self-driving gimmicks, no blowtorches, no broken Cybertrucks, no shitposting, no video-game marathons, and no casual ketamine use. Basically, no Elon. It needs a singularly focused, ruthlessly productive leader who can deliver the Model 2 — without copious delays.
On Tuesday, Musk addressed the recent layoffs by saying that Tesla needed to restructure itself for a "new phase of growth." He's right about that, the carmaker does need a major shake-up — starting with him.
The future did not have to look this ugly for Tesla. In 2020, the company was on top of the world. Its Shanghai plant started cranking out lower-cost, higher-margin cars. It was building a plant in Germany and another one in Texas. It sold more cars than ever before. Consistent annual profits led to a glorious stock market rally, and Wall Street rejoiced.
What did Musk do with those glory days? He sold a bunch of his Tesla stock to buy Twitter, tried to get out of the deal, and then was forced to go through with it. He blew up some rockets (to be fair, some also made it to space). He implanted a brain chip into a bunch of monkeys. He brought a kitchen sink to work and added a few more CEO jobs to his plate. He publicly bungled Gov. Ron DeSantis' attempt to launch a presidential campaign. At Tesla, Musk delivered about 4,000 Cybertrucks — every one of which has been recalled for faulty acceleration — while frittering away any goodwill the company has with its core customers.
Tesla failed to craft a strategy for chaotic times in what is still clearly a nascent EV industry.What I'm saying is that as much as Tesla accomplished in the past few years, it's clear Musk should've spent more time with it. Tesla failed to craft a strategy for chaotic times in what is still clearly a nascent EV industry. Sure, the company has been on a multiyear campaign to get lean and cut costs, but that strategy isn't enough to balance out price cuts, weak demand, and the need for major capital expenditures to get through this period of fleet stagnation.
A true visionary CEO — which Musk has long claimed to be — would have pressed the advantage that Tesla developed in the EV market. They would've done research to try to understand what EV demand would look like after early adopters bought cars. They'd know what kinds of buyers would enter the market at that stage, and which kinds of cars those buyers would want. A true visionary CEO would meet those customers where they are. Back in November, I spoke with Navdeep Sodhi, a pricing analyst at Sodhi Pricing Associates, who told me that Tesla should advertise to educate the public about the cost benefits of its cars, like savings on gas. Advertising could have also helped assuage concerns about issues like range anxiety. This month, Tesla laid off its entire marketing team.
For years analysts warned Musk that competition was coming, not just from legacy automakers but from the very Chinese market that fostered Tesla's success. Beijing has a pattern of supporting Western companies in China's markets in order to foster competition, then, once China-based rivals are able to catch up, tipping the scales in favor of homegrown companies. Add in the fact that Beijing has cornered nearly every aspect of the battery supply chain — from mining and refining metals to manufacturing the batteries themselves — which has helped China's EV makers to churn out models at price points as low as four figures. The new options have put Tesla on the back foot in one of its most important markets: Tesla's share of China's car market shrank to 6.7% in the fourth quarter of 2023 from 10.3% at the beginning of the year.
To maintain its lead, Tesla should have been singularly focused on building the Model 2 — moving down the pricing scale to where there were more customers. But it stopped innovating, the Model 2 hasn't materialized, and Musk's realization that the company needs to deliver a Tesla-for-the-people may be coming too late. Instead of boosting sales with an impressive or accessible new option, Tesla has tried to goose demand by erratically lowering the prices of its existing models to increase volume. This has not worked as planned: automotive revenue fell 13% from the same time last year, according to Tuesday's earnings release, and gross margins in the automotive division fell to 14.8% from 18% a year before.
Tesla has always been a "growth" company, the up-and-coming player taking on the legacy automakers. But now the company has entered a new stage of development — it's a large, mature firm, and continuing to grow requires larger amounts of capital, discipline, and focus. There was never a moment for Musk to rest on his laurels, but after 2020 Tesla started to look less like a place where Musk pushed constant automotive innovation and more like a place where Musk sourced cash to do whatever else he wanted with his life. Maybe he got bored, or maybe he got distracted — either way, Musk stopped pushing the envelope at Tesla way too early.
During the conference call, Musk had a million excuses for why this quarter was so poor — Houthi agitation in the Red Sea, an arson in Berlin, updates at the Fremont Factory. He asserted that Tesla was not a car company but rather an AI robotics company. He spoke ad nauseam about turning Tesla into a self-driving Uber service but refused to answer any questions about the Model 2. Look over here. Look over there. Look anywhere but at the next few quarters where there is no plan.
Forget growth — now the company that should have been America's EV juggernaut needs to figure out survival.Removing Musk may lead to a stock hit in the short term, there are still plenty of Elon fanboys out there who are holding on to their shares because of their obsession. But the rest of Wall Street is starting to wake up to Tesla's grim prospects: The stock was down by more than 40% for the year as of Tuesday and has fallen by more than 60% from its all-time high in November 2021. Sure, the gestures toward actually producing the Model 2 helped drive a post-earnings stock pop, but at this point, shareholders should be more concerned that Musk may fritter away the resources Tesla on side projects — whether that's turning X into a dating app for libertarians or building another vanity clown car. If the Model 2 isn't coming ASAP, it's tantamount to Tesla waving the white flag in the global EV wars for the foreseeable future. Forget growth — now the company that should have been America's EV juggernaut needs to figure out survival.
When Musk entered the EV Thunderdome, Tesla was the only game in town, interest rates were at 0%, and most of the country was convinced he was Iron Man. Since then, China has become an EV power player, legacy automakers have been trying to get a cut of the action, debt has become more expensive, and half the country has started to think Musk is Lex Luthor. Things have changed, and Tesla's leadership needs to change along with them or get left behind.
Linette Lopez is a senior correspondent at Business Insider.
