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Tesla sales decline, a sign of its waning grip on the electric car market

Tesla sales decline, a sign of its waning grip on the electric car market

Tesla appears to be losing control of the market it has effectively created after it reported a stunning drop in quarterly sales on Tuesday, raising new questions about Elon Musk's leadership of the company.

The decline in sales has surprised investors, with rivals such as China's BYD, Kia and South Korea's Hyundai all reporting increases in electric vehicle sales, suggesting that slowing overall demand for battery-powered models was not the only explanation for Tesla's problems.

Tesla pioneered the electric vehicle market with its Model 3 sedan and Model Y SUV, which proved that battery-powered cars could be attractive, practical and profitable. Cars have revolutionized the automobile industry and forced existing automakers to develop their own electric models.

But the market is evolving in ways that may not be in Tesla's favor. In contrast to the early adopters who contributed to Tesla's rise, mainstream buyers may be frustrated by the vehicles' unconventional design, including minimalist interiors and a lack of buttons and switches. Almost all functions in Tesla cars are controlled through a large screen on the dashboard.

The system “makes it quite distracting to adjust almost anything inside the car while driving on the road,” Consumer Reports wrote in a Tuesday review of the new version of the Model 3.

Tesla, which sells cars online and does not have many showrooms, is often the target of complaints about poor service. This could provide an advantage to established automakers, such as Ford Motor Co. and General Motors, which have extensive dealer networks and are ramping up electric vehicle production.

Tesla seems at a loss to respond to these challenges. It has been slow to follow up its initial success with new models, and Mr. Musk seems uninvolved. On Tuesday, he did not respond to sales figures on X, the social media platform he owns and posts heavily on. Instead, he lashed out at Walt Disney executives, accusing them of being “woke.” Such statements have made him a hero to conservatives, but they may push liberals, who are more likely to buy electric cars, away from Tesla.

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Tesla He said It delivered 387,000 vehicles worldwide in the first quarter, down 8.5 percent from 423,000 vehicles in the same period last year. It was the first time Tesla's quarterly sales fell year-over-year since a modest decline at the start of the pandemic in 2020. The sales numbers were also well below estimates from Wall Street analysts who expected a modest increase.

“Tesla cannot stand still,” Ben Rose, president of Battle Road Research, said in an email. “Chinese electric vehicles are already gaining a foothold in Europe, and it is unclear how long they will be banned from entering the United States.”

Mr Rose said more affordable cars would help Tesla attract a wider range of buyers.

To be sure, some of the sales decline may have reflected production problems beyond the company's control, including a fire at a Tesla factory near Berlin that was the result of an arson attack.

The company's cars still have many fans. While moving the controls on the Model 3, Consumer Reports said the latest version offers a better ride than its predecessor and has improved handling.

But investors are clearly worried. Tesla shares have fallen more than 30 percent this year — including a 5 percent drop on Tuesday — on concern that the company has lost momentum.

In China, Tesla faces BYD and dozens of other competitors with ambitions to expand around the world. In Europe, established automakers such as Volkswagen and BMW have introduced more compelling battery-powered models. In the United States, electric vehicle sales are not growing as quickly as a year ago, and many buyers are instead choosing hybrid models that pair the gasoline engine with batteries and electric motors.

Tesla's competitors continued to report increases in sales. BYD said Tuesday it had sold about 300,000 electric vehicles, an increase of 13 percent from a year earlier. The company also sold 324,000 hybrid vehicles in the first quarter, an increase of 15 percent.

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BYD and other Chinese automakers have introduced new models quickly, often undercutting Tesla's price. These companies are also increasingly exporting cars to Europe, Southeast Asia and Latin America.

South Korea-based Kia said on Tuesday that its electric vehicle sales in the United States more than doubled in the first three months of the year from a year earlier after it introduced a new large sports car, the EV9. Hyundai, Kia's sister company, said it sold more than 10,000 electric vehicles in the first quarter in the United States, an increase of 75 percent.

Toyota, the world's largest automaker, doesn't sell many fully electric cars. But the company said U.S. sales of electric vehicles, a category largely made up of hybrids, under the Toyota and Lexus brands, rose 74 percent in the first quarter.

Tesla was a pioneer in mass-market electric vehicles, but its product lineup is outdated. The company's only new model since 2020 is the Cybertruck, a futuristic pickup that went on sale in limited numbers last year. The least expensive version that Tesla says it can deliver this year starts at about $80,000, making it unaffordable for most car buyers.

Rivian, whose R1 truck competes with the Cybertruck, said its sales, including the truck and its two other models, rose 70 percent in the quarter, to 13,600 vehicles.

Tesla is working on an electric car that will cost about $25,000, but the model is not expected to go on sale in significant numbers until 2026. In the meantime, Tesla remains dependent on the Model Y and Model 3 for the majority of its sales.

The company has repeatedly cut prices, but analysts say the strategy reduced its profits without doing enough to stimulate sales. The company has recently raised the prices of some cars modestly in the United States and China. The Model Y starts at about $45,000 before federal and state tax credits, after a $1,000 increase announced this week.

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The quarterly sales figure shows that Tesla managers “need a real sales strategy and cannot rely on price cuts alone,” Gary Black, managing partner at Future Fund, an investment firm, posted on X.

Mr. Musk, Tesla's CEO, did not provide a clear indication of how the company plans to regain momentum. At the same time, his polarizing statements and endorsement of right-wing conspiracy theories have alienated many left-leaning customers who are more likely to buy electric cars.

Los Angeles resident Rafael Cassens gave up her Tesla Model Y last year and replaced it with a BMW i4 electric rental car. She said Mr. Musk was one of the reasons for her conversion.

“Honestly, I don’t like him as an individual at all,” said Cassens, a registered Democrat but who described herself as nonpartisan. She also said she received poor service from the company. “The company’s position certainly reflects the owner,” Ms Cassens added.

At least one other major automaker is also struggling with electric vehicle sales. GM said Tuesday that its U.S. sales during the first quarter fell 1.5 percent, largely because deliveries of battery-powered vehicles fell by about a fifth to about 16,000 vehicles.

The decline in battery-powered car sales was the result of a sharp decline in sales of the Chevrolet Bolt, which GM will stop making at the end of 2023. Sales of other electric models that use GM's latest battery technology rose, but not enough to offset. For the loss of the Bolt, which was one of the most affordable electric cars in the United States.