From thrilling growth to fading demand, Tesla’s high-voltage journey faces new challenges—from Chinese competition to perception issues.
02 Apr 2025 | 1051 Views | By Ashutosh Radhey Shyam
The global landscape is home to a select few brands that consistently evoke contrasting opinions among the general public, despite their claims to champion clean energy. The animosity surrounding such brands can, at times, escalate to extreme levels, manifesting in protests, riots, and even acts of violence, such as the ...
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The global landscape is home to a select few brands that consistently evoke contrasting opinions among the general public, despite their claims to champion clean energy. The animosity surrounding such brands can, at times, escalate to extreme levels, manifesting in protests, riots, and even acts of violence, such as the throwing of Molotov cocktails.
Yet, paradoxically, these very brands often gain prominence, becoming the subject of public discourse even in regions where their products have not yet been physically experienced. The reach of digital media amplifies their presence, making them a topic of conversation far beyond their immediate customer base.
One such brand is Tesla Inc., led by the controversial and visionary CEO, Elon Musk. Musk, the wealthiest individual on Earth, holds a fortune valued at $311 billion, according to the Bloomberg Billionaires Index. Tesla Inc.—a name inspired by the legendary 19th-century scientist Nikola Tesla, known for his groundbreaking contributions to the development of alternating current and numerous other innovations—has become a symbol of both technological advancement and public contention.
Although Tesla's founder, Nikola Tesla, passed away in relative obscurity, the world would later come to appreciate his genius, as well as his struggles. Similarly, Tesla Inc. has faced many challenges, yet it has been able to spark global discussions with its pioneering electric vehicles (EVs). Tesla has achieved significant milestones, including reaching a market capitalisation of over $1 trillion—a feat only a few companies can boast of.
This milestone is equivalent to the combined market value of South Korea’s entire stock market and is nearly one-fourth of India’s total market capitalisation. In 2024, Tesla sold 1.8 million electric cars globally. Despite selling only one-tenth of the vehicles of traditional car manufacturer market leader Toyota, Tesla has a market capitalisation of close to $800 billion.
At its peak, the company’s market capitalisation was a whopping $1.42 trillion. Currently, it is valued at one-quarter of Toyota Motor Corporation's value, even though the latter sells nearly 10 million cars annually. The reasons behind Tesla’s high valuation lie in its ability to shape the electric vehicle market and position itself as a leader in autonomous driving.
Tesla is not only revolutionising how people drive, but it is also paving the way for the future of mobility, exemplified by its plans to introduce robotaxis by 2026. The company’s stock trades at 90 times its projected earnings for the upcoming year, compared to the S&P 500’s average of 21 times, cementing Tesla’s status as one of the most valuable companies among the "Magnificent Seven" stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla).
Many investors see Tesla as a proxy for the broader field of artificial intelligence (AI), given its focus on developing fully self-drive (FSD) vehicle. The company is betting on AI and autonomous technology to disrupt not just the car industry, but also how people will move in the coming decade.
CEO Elon Musk firmly believes that Tesla has the potential to become the world’s most valuable company in terms of market capitalisation, a sentiment that the investor community seems to share. Tesla has established itself as a dominant player in the realms of platform technology and clean mobility, which encompasses electric vehicles, energy storage, software, and charging solutions.
Over the past decade, Tesla’s performance has been nothing short of miraculous. The company’s revenue reached $97.69 billion in 2024, reflecting an annual growth rate of 40% over the last ten years. Of this total, $77 billion came from automotive sales, while energy storage contributed about $10 billion, and the remaining $10.53 billion stemmed from services and other revenue streams.
Tesla’s production volume has also surged, growing at a compound annual growth rate (CAGR) of 50%, from 31,655 units in 2014 to 1.789 million units in 2024. In the past five years alone, Tesla has accumulated a net profit of $35 billion, and the company has consistently invested around $10-11 billion per year into research and development, particularly in the areas of new technologies and autonomous driving.
Tesla now operates with a total installed production capacity of 2.3 million units across its factories in China, Germany, and the United States, with nearly 1 million of these units dedicated to the production of its Model Y in China. However, the tide has begun to shift, signaling a potential challenge for Tesla's medium-term performance.
The company faces an aging product lineup and the rise of competition from Chinese automakers, which are applying significant pricing pressure to Tesla’s products. This situation worsened following Musk’s involvement in U.S. political affairs, leading to a decline in interest from prospective buyers—especially in states like California, where Tesla's performance suffered in all four quarters of 2024.
California, a state with a predominantly Democratic electorate and the largest EV market in the U.S., saw a significant drop in Tesla's sales after Musk's active support for former President Donald Trump. Musk’s $288 million investment in Trump’s campaign further exacerbated the brand’s divisive image. The growing competition from Chinese manufacturers has become increasingly evident, as Tesla’s market share in the U.S. EV market dipped below 50% in 2024, from over 80% in 2022.
In China, Tesla’s market share has shrunk to less than 5%, a far cry from its dominant position, as local players like BYD and Geely make significant inroads. China, the largest EV market in the world, has seen its domestic EV makers capture a substantial portion of the market. In February 2025, BYD reported a 161% increase in sales to 318,000 units, while Geely saw a growth of 84%, reaching 205,000 units.
Xiaomi, a company more known for its smartphones, also made a strong entry into the EV market, selling more than 20,000 units of its new premium model, the SU7, within hours of its release, with a price tag of $72,500. Despite Tesla’s efforts to maintain its competitive edge, the company has struggled to hold onto its market share in China. In February 2025, Tesla's shipments to China fell by 49%, reaching only 30,688 units— the lowest monthly total since July 2022.
The situation is similarly bleak in Europe, where sales in Germany plunged by more than 70% in the first two months of 2025. Industry observers believe this decline is linked to Musk’s outspoken support for Trump, which may have alienated potential buyers in key international markets. In Tesla’s home market of the U.S., which accounts for nearly half of the company’s sales, there has been a precipitous decline in volume.
In February 2025, Tesla’s U.S. sales fell to just 43,650 vehicles, the lowest figure in nearly three years, compared to a peak of around 60,000 units in February 2023. Tesla's total sales volume declined in 2024 for the first time in nearly a decade on an annual basis, while pressure mounted on both market share and operating margins. The gross margin—a key indicator of how pricing and raw materials are impacting costs—of the Model Y maker dropped to 16.6% in the final quarter of 2024, compared to 32.9% in the first quarter of 2022.
Interestingly, the company has managed to reduce its cost of sales per vehicle, which has fallen to a record low of $35,000 per vehicle. This highlights the growing pricing pressure from Chinese competitors, which are offering cars at nearly half the price of Tesla and have a diverse portfolio of models. In contrast, despite offering five models, Tesla derives nearly 90% of its sales volume from the Model 3 and Model Y.
The pricing gap is further emphasised by the fact that the average selling price of a Tesla is around $42,000 per vehicle on a blended basis, with the Model 3/Y averaging $83,000 per vehicle, while Chinese automakers offer competing vehicles priced between $9,000 and $20,000. The recently launched Xiaomi premium EV, the SU7, saw bookings of nearly 10,000 in just minutes, with a sticker price of $72,500.
On the autonomous front, Chinese companies are proving to be formidable competitors to Tesla. BYD, the world’s largest EV manufacturer, features God's Eye technology, while Geely has introduced its AI-powered pilot system. Several factors are contributing to this downturn.
The aging product lineup, which includes the Model S (2012), Model X (2015), Model 3 (2017), Model Y (2020), and the Cybertruck (2023), has created challenges for Tesla in terms of maintaining customer interest and sustaining growth. Additionally, macroeconomic conditions in the U.S., such as the reduction in government subsidies, rising prices, and limited charging infrastructure, have hindered the adoption of EVs.
Tesla’s core automotive business is also facing headwinds due to shrinking subsidies, price sensitivity among consumers, and limited charging infrastructure. According to the U.S. Department of Energy, only half of the EV models listed on its website qualify for federal subsidies, further reducing the potential for widespread EV adoption.
Goldman Sachs has revised its projections for EV adoption in the U.S., lowering its forecast for market penetration in 2025 to 8.5%, with expectations of only 40% penetration by 2035. A combination of internal and external factors has led analysts to adopt a more cautious stance on the Tesla stock, trimming their target prices.
Evercore ISI, for example, reduced its full-year delivery estimate for Tesla to 1.75 million vehicles, down from 1.88 million for 2025. Similarly, UBS analysts lowered their delivery projection to 1.7 million, which contributed to a significant drop in the stock’s price. Despite these setbacks, Tesla executives have maintained that the company will return to growth in 2025, after experiencing its first annual sales decline in over a decade.
Tesla is now betting heavily on the success of autonomous vehicles and robots to drive its next phase of growth. It plans to release a vehicle without a steering wheel or pedals by 2026, signaling its commitment to fully autonomous driving. Tesla’s fully self-driving software (FSD) has shown significant improvements with the release of version 13, which is achieving a range of approximately 400- 450 miles between critical interventions.
The company believes that this software will eventually surpass human drivers in terms of safety. If successful, the FSD technology could significantly boost Tesla’s gross margins starting in 2026. While the company continues to face challenges in its core automotive business, its future prospects will depend on how successfully it can capitalise on autonomous driving and robotics.
Should Tesla manage to maintain its leadership in autonomous vehicle technology, it could position itself for significant growth, despite the ongoing pressures from increased competition and market saturation.