Tesla Faces Uncertain Future: Could it Lose its Place Among Tech Giants?

American tech giant Tesla is struggling. The company’s fourth-quarter earnings fell short of expectations last year, and the outlook for this year is not good either. Some speculate that Tesla could fall out of the Magnificent 7, a group of big tech companies leading the U.S. stock market.

According to CNBC and The Wall Street Journal (WSJ) on the 24th (local time), Tesla’s fourth-quarter revenue and earnings per share last year were $25.17 billion and 71 cents, respectively. These figures significantly fell short of the $25.6 billion in revenue and 74 cents in earnings per share predicted by market research firm LSEG.

The problem is that Tesla’s outlook for this year is also not promising. In its earnings announcement, Tesla stated, “Vehicle deliveries increased by 38% compared to the previous year. The growth rate this year could be significantly lower than last year,” suggesting the possibility of slow growth. Elon Musk, CEO of Tesla, expressed concerns that the company’s growth rate could slow down as they need tremendous innovative technology to launch new cars while making efforts.

The market expects the number of Tesla vehicles delivered this year to decrease. Tesla unusually did not announce a specific vehicle delivery target for this year. Wall Street predicts that Tesla will sell 2.2 million vehicles this year. Although this is a 21% increase compared to last year, it falls significantly short of the 50% delivery increase target set by CEO Musk.

The market evaluates that Tesla’s downfall was predictable. Tesla’s growth has faltered as the demand for electric vehicles slows down due to high prices, interest rate hikes, and charging issues. In addition, Chinese electric vehicle manufacturer BYD, which emphasizes price competitiveness with its low-cost models, has emerged. BYD seized the top spot in the global electric vehicle market share by targeting domestic sales in China last year. Tesla tried to counteract this by repeatedly lowering its prices, but it did not succeed.

The market’s reaction is cold. Tesla’s stock price fell by 6% during after-hours trading after the market closed. Based on the closing price on this day, Tesla’s stock price recorded $207, bringing it close to going down below 200 dollars for the first time in two months.

The dominant opinion worldwide is that the slowdown in demand for electric vehicles will continue for a while. The market consensus is that the situation differs from last year, when the stock price more than doubled. Morgan Stanley lowered Tesla’s target stock price from $380 to $345 the day before, citing slowed growth and decreased profits.

Tesla’s plan to release a low-cost electric car was revealed but failed to defend its stock price. The vehicle, codenamed “Redwood,” is a so-called “budget model” starting at a minimum price of $25,000. It is interpreted as a move to compete with Chinese electric vehicle manufacturers that emphasize price competitiveness.

Some in the market suggest that the Magnificent 7 could be reorganized as Tesla’s stock price continues to fall. The Magnificent 7 refers to the seven big tech companies, Amazon, Apple, Alphabet, Nvidia, Meta, Microsoft, and Tesla, that led the rise in the U.S. stock market last year. They account for 30% of the S&P stock price.

These companies have ridden the AI boom to see their stock prices rise, but Tesla is moving in the opposite direction. Microsoft broke through a market cap of $3 trillion on the day, and Meta surpassed a market cap of $1 trillion. Nvidia also rose more than 27% since the beginning of the year. However, Tesla has been having gloomy days as it has fallen 16% since the beginning of the year.

As of this day, the top 6 in the U.S. stock market capitalization are all Magnificent 7 companies, while Tesla has fallen to 8th place. It is also the only company among the Magnificent 7 with a market cap below $1 trillion.

An American television personality, Jim Cramer, said, “Tesla could experience a growth hiatus, unlike other big tech companies.”

Some suggest that Eli Lilly and Company could fill Tesla’s vacancy. Eli Lilly and Company has been receiving attention for launching Zepbound, an obesity treatment approved by the Food and Drug Administration (FDA) in November last year. Although Eli Lilly’s current market cap is around $600 billion, it is expected to join the $1 trillion club shortly. Eli Lilly’s stock price has risen about 7% since the beginning of the year.