Only a few weeks into the new year, Tesla Inc. has been put through the wringer. In just two weeks, the company’s stock is down about 16% YTD, cutting roughly $120 billion from the company’s market value thanks to a slew of largely negative headlines. Last year, CEO Elon Musk stressed that they needed to make cars cheaper, but without reducing their own profit margins, which have taken a significant hit over the past year.
Although still the most valuable car company in the world, Tesla’s gross margin has steadily fallen the past six quarters, tumbling to 17% in its most recent earnings compared to 25% the year before. With executives set to report fourth-quarter earnings on Jan. 24, recent news doesn’t suggest the trend will reverse itself any time soon.
Union Troubles and Wage Increases
In October, Swedish technicians covered by the auto worker union IF Metall decided to strike when Tesla executives refused to sign a collective bargaining agreement. The company’s leaders believe the pay and benefits it offers is comparable or even better than if they were to sign the agreement. However, the union and several workers disagreed. Since then, the conflict has escalated with other unions striking in solidarity: Postal workers aren’t delivering Tesla automobile registrations, dock workers won’t unload vehicles and electricians aren’t serving their chagrining stations. The discontent has not been contained to Sweden, either: Unions in Finland, Denmark and Norway have also joined the fight.
Roughly 65% of workers in Sweden are part of a union, one of the highest rates in the world. Nine out of workers are covered by some kind of collective agreement and it’s been this way for decades. The country has no national minimum wage, pension or working provisions; everything is done through agreements.
Earlier this month, though, a bright spot appeared as IF Metall proposed that Tesla employ a contractor that already has a collective agreement in place. Of the roughly 130 technicians in Sweden, it’s still unknown how many are actually striking.
In the United States, however, Tesla may be hitting back at union pressures in its own way. After the United Auto Workers’ recent wins against other large automakers, leaders have indicated they intend to unionize at least one Tesla plant among others in the near future. (The union recently announced a formal push to organize a Mercedes-Benz plant in Alabama.) Past attempts have been unsuccessful, but authorization cards circulating around Tesla plants have surfaced online.
Looking to stave off those efforts, the company recently announced via internal communication that workers in multiple roles at its Fremont, California, plant and other gigafactories would receive a “market adjustment pay increase.” This is in juxtaposition to salaried workers losing a part of their benefits package: stock options, which, in the past, CEO Elon Musk has touted as one of its advantages over other companies.
The Boss’ pay
Regular workers aren’t the only ones looking to add to their compensation packages: Musk recently said he needs a stock grant that would lift his stake in the company to 25% stake, roughly double what he has now. His argument: The larger stake will help avoid takeovers and let Tesla retain control of its robot development and other artificial intelligence technology. If Tesla refuses? He’ll just take those ideas elsewhere, Musk said. He has already piloted a new startup, xAI, focused on developing artificial intelligence.
“I am uncomfortable growing Tesla to be a leader in A.I. & robotics without having ~25% voting control,” Musk wrote on X (formerly known as Twitter), which he purchased for more than $40 billion by selling a substantial amount of his stake in Tesla. “Enough to be influential, but not so much that I can’t be overturned.”
Currently, Tesla uses AI in its autopilot and full self-driving systems.
Price Cuts, Squeezed Supply Chains
Tesla also has slashed prices on its Model Y across Europe recently. The biggest cut came in Germany, where the Model Y Long Range sport utility vehicle fell just over 8% to 49,990 euros ($54,340). The company didn’t specifically comment on why it had reduced prices, but Volkswagen overtook Tesla in German EV sales last year, based on vehicle registration data.
But that’s not the end of its European troubles. Just last week, executives announced most of the production at their plant near Berlin would be suspended from Jan. 29 to Feb. 11 due to a component shortage. The supply chain has been tight in the area because of attacks on vessels in the Red Sea by the Yemen-based Houthi group. The attacks have forced companies to change routes, adding up to nearly a month of extra wait time.
The European price cuts come after Tesla slashed prices in China, one of the largest EV markets. The company has been in a price war there since early 2023, when it cut prices on several models up to 13.5%. In the most recent round, it reduced the Model 3 sedan to 245,900 yuan ($34,300) and the Model Y by 2.8% to 258,900 yuan ($35,987). Much of the cuts were due to its competitor, BYD.
BYD, which is backed by billionaire Warren Buffet, surpassed Tesla in 2023 as the world’s biggest seller of EVs. The vehicles are cheaper, starting at $10,000, compared to the cheapest Tesla, which starts at $43,000.
Still Growing
It’s not been all bad news for Tesla, though. Alongside news that Mazda would join its fast charging network, The company announced plans to soon open its first South Carolina facility, which will span 251,100 square feet and focus on distribution, not manufacturing. New Jersey-based Sudler Company is developing the project. The firm already has one Tesla project under its belt, having similarly worked with Tesla in Tampa last year.
“This facility will not only create local jobs that will support families, but it also helps many of our region's existing suppliers get their products to one of the nation's most innovative automotive companies more efficiently,” City of Fountain Inn Mayor GP McLeer said. “We continue to be proud of our community's expanding role in the automotive industry and are excited to see Tesla begin operations.”
Tesla did not provide the financials of building the center or how many jobs it may bring to the area. But at least Tesla leaders can say they’re still growing their EV operations: Ford Motor Co. on Jan. 19 said it will slow production of its F-150 Lightning electric pick-up truck this spring while ramping up work on the Bronco and Ranger internal-combustion models. Margins are on the mind of Ford brass, too: The moves, they said, are being carried out with an eye on “optimizing financial returns.”
