We all know that Tesla is the most powerful company of the revolution of automobiles. During the covid-19 pandemic, most of the automobile companies were struggling to make profits. But it was Tesla that was hitting profits with 721 million dollars while raising the stock price of the company by 740 percent in 2020. Even in the Q2 of 2021, Tesla company was reported to record a profit of more than $1 billion. So we can predict that Tesla is an unbeatable company in the automobile revolution, but the twist is not really because, by 2021, Tesla is in deep trouble facing threats, and it is in a situation where the success will be decided the fate of the company.
3 main challenges faced by Tesla
Tesla’s dependency on regulatory credits to make profits
The government all around the world started concerning carbon emissions so that they introduced incentives for automakers to build electric vehicles that emit low carbon. So the car companies were given regulations to produce a certain number of zero-emission of vehicles. This number was based on the total number of cars sold in the state.
For example, if a car produces 100 cars, they are expected by the government to produce zero-emission vehicles. And if they fail to do so they had to pay fines to the government. But on the other hand, Tesla was already producing a number of zero-emission vehicles because they are already in the field of producing electric vehicles. When compared to other companies like Toyota and Honda, Tesla had more zero-emission vehicles.
These companies were not able to produce these vehicles by themselves, therefore they started buying those credits from Tesla, which made a massive profit for tesla company. So during the pandemic, the company was able to make profits by selling regulatory credits more than through the sales of cars. But this is becoming a problem for the company.
Stellantis, is one of the largest buyers of Tesla company credits which buys $2.4 billion worth of credits. But now they are planning to have their own electric vehicles by next year which will wipe out the profit of Tesla.
So Tesla’s over-dependent on regulatory credits had become a problem because when automakers start making their own electric vehicles Tesla profits would go down. Because during the Q1, of 2021, Tesla made 438 million dollars, through sales, and 518 million dollars through regulatory credits.
But, when everyone thought Tesla would fall, there was a twist when Tesla made 354 million dollars through regulatory credits and $1.14 billion through car sales.
Tesla’s business affair with China
The second trouble, which was Tesla’s affair with China. The Chinese electric vehicle market is one of the fastest-growing markets in China. During the pandemic, the global sales of electric vehicles in China increased by 43% in 2020. China accounts for 1.3 million electric vehicles which is 41% of all-electric vehicles sold worldwide.
In 2019, China got permission to build a Giga factory. But then Tesla became the first foreign manufacturer to own 100% of their factory in China. China gave tesla, a loan of 614 million dollars to construct the factory.
China completed the factory with a record of just 160 days, while Tesla, in the US, took close to 2 years to complete the Giga factory. Tesla cars for a 10% tax exemption that made them be the first foreign manufacturer to receive this exemption without having a local joint venture partner.
In the pandemic, when companies are struggling to get N95 masks, Tesla got the masks and buses easily for its workers from China, to ensure their safety while continuing the manufacturing. So that the company was able to deliver almost half a million vehicles and set a record of delivery of 180,000 vehicles. It got its overall revenue of 31.5 billion dollars in 2020, including the revenue from China.
Everything is going well, but in February 2021, the authorities of China talked with Tesla about the consumers’ complaints on the vehicle issues of Tesla-like battery fires, brakes, software upgrade failures, and other problems. And by March 2021, China does a security review of vehicles because they thought the information could be sent back to the US, cause Tesla’s automated driving features have relied on camera systems.
In April 2021, one of the owners of Tesla started making headlines yelling in the public, saying that Tesla’s car brakes are not working. So that the tesla’s market in China went down. Where on the other hand, Chinese companies like BYD, were looking for growth of 189.62%. Tesla’s entry into the Chinese Market, made those companies enhance their performance and raise standards.
Competition from other automobile companies
The third threat was that Tesla received competition from other companies in the US and Europe.
By February 2021, the company only received a 5.4 % of sales growth, and Ford’s Mustang E became the third selling electric car in the US. And Volkswagen in Europe beat Tesla and became the top-selling electric vehicle maker in 2020. And there were other General Motors who announced to increase the electric vehicle and automated vehicles investment by 35 billion dollars from 2020 to 2025.
All the tesla faces, threats through over depending on regulatory credits, China’s intend to put Tesla down, and competitions from other companies, still it is Elon Musk and they can come up with any game-changing strategies that can bring success to the company. So before investing in companies like Tesla, give your attention to the government subsidy and the strategic partnerships between automakers because this will impact the future players in the electric vehicle revolution.
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