Mark has been driving a Tesla since 2014. But after almost a decade of loyalty to Elon Musk’s electric-car company, his faith is starting to fade.
“I feel stupid driving around with my brand-new Tesla Model Y,” Mark told me.
In 2022, Musk raised the prices of Tesla’s four models, citing rising supply costs and updates to its driver-assist system. So when Mark was able to secure a year-end rebate to cut the cost of his new Model Y to $58,490 from $65,990, he thought he was getting a rare deal. But on January 13, just over two weeks after his new car was delivered, Tesla announced it would slash the price of the Model Y to $52,990 — a $13,000 drop.
The sweeping price cuts sent a shockwave through the Tesla-owner community — the value of their brand-new Teslas dropped by as much as 20% overnight. Fans who’d stuck with Musk through “production hell,” several federal investigations, and instances of steering wheels literally falling off had reached their limit.
Mark’s message for Tesla’s CEO was straightforward: “Elon, please help us and do something!”
Tesla spent the past two decades defying expectations and disrupting the automotive industry, but in 2023 the once revolutionary car company did the seemingly unthinkable: It turned fanboys against it. The uproar among loyalists like Mark, who are typically also Tesla shareholders, is more than complaints from overly attached enthusiasts. It’s a sign that a company that has for so long relied on a near-mythic reputation as a futuristic automaker may be losing its edge.
Tesla is turning from a young and scrappy industry disrupter into a company that looks much more like the automakers it used to rattle. And the company’s once grandiose leader, who showed up in “Iron Man” movies and promised to take us to Mars, is looking more human by the day.
Tesla has only ever existed without real competition and in a favorable economic environment. Now the market of electric vehicles is anyone’s game, and Musk is about to find out how hard it can be to go to war with some of the world’s most recognizable brands.
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Losing the edge
Tesla’s calling card since its launch in 2003 has been technology. The company has been at the forefront of the EV revolution, delivering the first battery with a range that could rival a gas-powered car, and the first widespread charging infrastructure with the Supercharger network. Tesla also led the way on innovations like over-the-air software updates, giant in-car touchscreens, and keyless vehicle entry. But after years of rocketing ahead of legacy car companies’ tech, the futuristic guts of Tesla’s vehicles have started to go stale.
The average electric car from automakers like GM, Ford, and Hyundai now has the range to rival Tesla. The iPad-like touchscreen is now standard in new vehicles. Other car companies are even catching up on software, directing billions of dollars to new Tesla-fighting features like hands-free driving and batteries built for performance. But perhaps the most glaring example of Tesla’s now humdrum innovation is its position in the world of self-driving technology.
Musk has for years promised to deliver completely driverless Teslas, saying last year that his electric-car company would be “worth basically zero” if it didn’t prioritize self-driving technology. Tesla was quick to develop a Level 2 hands-free driving system, in which a driver doesn’t need to touch the steering wheel but needs to remain attentive to the road. But competitors like GM and Ford have already introduced similar hands-free driving systems — and have managed to do so without getting mired in federal investigations. Perhaps the final nail in the coffin of Musk’s automation ambition came in early February when Mercedes-Benz received the first-ever certification for Level 3 driving automation — designed to require human intervention only in severe conditions — on public roads in the US.
Mercedes lapping Tesla on Level 3 autonomy was followed swiftly by another setback: Tesla recalled more than 362,000 of its vehicles over concerns the latest Full Self-Driving (FSD) software could increase the risk of crashes.
Car companies have fought to one-up each other on the latest technology since the days of cassette-tape radio systems and antilock braking. Tesla set the bar high enough that it’s taken a little longer for competitors to catch up, but now the dinosaurs of the auto industry are starting to lap their upstart counterpart.
“Competition is starting to eat into Tesla’s market share,” said Martin French, a managing director at the consultancy Berylls. “If you’re a consumer it’s great news. There are a lot of really great electric cars to choose from out there.”
Still, French said, that doesn’t mean all is lost for the industry disruptor. Tesla has kept its edge on timely over-the-air updates, meaning that even if people aren’t coming in to upgrade their vehicle for one with new hardware, Tesla can still squeeze revenue out of its customers. “There’s nobody else out there at the moment that can deliver a car and then three months later charge $11,000 for a package on their vehicle,” French said.
Tesla’s tech problems don’t just end with the interior — its cars’ exteriors also leave a lot to be desired. Since the release of the Model S in 2012, Tesla hasn’t fully redesigned any of its vehicles. Its most popular cars, the S and the Model 3, are both sedans — a body style the rest of the industry left in the dust some five years ago. And by the time the Cybertruck hits the market (though it was announced in 2019, it’s finally supposed to start production at the end of this year), the electric-pickup-truck market will be well established with models from the likes of GM, Rivian, and Ford, whose F-Series pickup trucks have been the top-selling vehicles in the US since the Reagan administration.
Recently, Tesla has hinted at some face-lifts for the Model 3 and the Model Y. Sam Fiorani, an automotive analyst for AutoForecast Solutions, described them as overdue. As Tesla tries to move more and more cars, he argued, refreshing their designs will become a critical piece of the business.
“When you move to higher-volume vehicles, you have to start keeping up with the Joneses,” Fiorani said. “When you sell some 300,000 of the same vehicle every year, and then they’re all parked together in a grocery-store parking lot, those customers suddenly want something to set them apart from their neighbors.”
As if that wasn’t enough, Tesla’s losing its grip on the novelty of the way it sells cars. The company decided from the start to eschew the dealership model and sell its cars directly to customers, giving Tesla more control over pricing and therefore an edge over its legacy competitors on profit per vehicle. But competitors are finding a way to keep their dealers — long protected by an intricate web of franchise laws in the US — and beat Tesla at its own game.
Companies like Ford and Audi are changing their sales strategies to model Tesla’s innovative direct-sales style. These companies have something Musk doesn’t: nationwide networks of brick-and-mortar locations where customers can have their vehicles serviced and repaired. Tesla’s service network is still fairly thin, with only 670 stores nationwide and 1,300 mobile-service options to serve the roughly 2 million Teslas on the road. This is giving established companies the opportunity to take lucrative business from Tesla — and look deep inside its cars — through repairs. GM’s president, Mark Reuss, recently told investors that its dealers started repairing Teslas in 2021. GM has multiple dealerships in all 50 states, compared to Tesla, which doesn’t have a store in 15 states.
“It’s a new business, which is great,” Reuss said with a laugh.
While Elon keeps Elon-ing, Tesla is getting beat
One of the clearest signs that a carmaker is facing serious issues is oversupply. Cars can languish on lots for plenty of reasons that may sound familiar: Customers are underwhelmed by designs, other automakers have rolled out some hot new tech, or the brand’s reputation has been damaged. Tesla — which once had to build vehicles in tents outside its assembly plant in Fremont, California, in a chaotic attempt to meet customers’ overwhelming demand — long seemed immune to this problem.
But cracks began to show in late 2021, when Tesla signed a deal to supply the car-rental giant Hertz with 100,000 vehicles. While EV boosters and Tesla bulls lauded the move — days later Tesla’s market cap reached $1 trillion — others in the industry wondered whether the deal was a sign that Tesla had an overbuilding problem.
“We’re seeing Tesla fall into these traps all the automakers go down eventually, and it all really started with the rental sales,” Ivan Drury, an automotive analyst for the car-shopping site Edmunds, said in an interview with Insider in December. “That’s a pretty traditional means of moving metal.”
As Teslas started stacking up and the company’s edge started to slip, Musk lost focus. Last spring, the billionaire became increasingly obsessed with a takeover of Twitter. To fund his $44 billion quest to obtain the social-media site, Musk spent much of last year selling off shares of Tesla — $22.9 billion worth — and took on a huge amount of new debt. Amid the financial shenanigans, Musk’s bombastic behavior, and reports of chaos at Twitter after his takeover, Tesla shares plummeted.
By the end of 2022, whispers of the EV maker’s overbuilding problem had grown to a roar. As the rest of the auto industry faced tighter inventory and held back on year-end deals, Tesla offered an unprecedented $7,500 discount on its Model 3 and Model Y vehicles. Investors were spooked, customers were mad, and Tesla’s stock closed 2022 down 65% as even the biggest Tesla bulls wondered whether Musk was ready to take on an economic downturn in 2023.
Tesla’s falling back to the pack doesn’t mean the company is doomed. A dose of competition may be what Tesla needs to push itself out of this stagnation, French said. “It’s always good to keep on your toes in this business,” he told me. “They’ve got the cash to do what they want — now we see how they use that to stay ahead.”
But the company’s new position has left other industry analysts concerned.
“The Cinderella ride is over for Tesla,” the Wedbush analyst Dan Ives wrote in a note ahead of Tesla’s earnings report in January. “Musk now needs to navigate the company through this Category 5 dark macro storm instead of focusing on his new golden child Twitter, which remains a distraction and overhang for the Tesla story/stock in our opinion.”
Musk was able to quell some of this investor worry on the company’s earnings call, confidently painting a rosy picture of the year ahead for Tesla.
The calm, collected Musk helped stem the yearlong collapse of Tesla’s stock, but the company’s existential problems remain. In almost every area where Tesla has carved out an edge in the past 20 years — vehicle design, tech, sales strategy — the startup is getting beat. Musk’s legacy competitors are right at his heels.
Nora Naughton is a senior reporter covering the automotive industry for Insider.