Tesla: The Road To Hell Is Paved With Good Intentions

When the first automaker to successfully commercialize and mass-produce electric vehicles fast enough to hold their own on the highway stumbles, it raises questions about the sustainability of the industry.???

With Tesla’s market capitalization being a shadow of its former self, losing almost half its value from its late 2021 peak of $1.2 trillion to roughly $560 billion, Tesla was the S&P’s worst performing stock in the first quarter of 2024.?

The question is how much of this fall from grace is due to strategic missteps or self-inflicted wounds compared to macroeconomic forces like slowing EV demand and competition from China.?

Tesla delivered 386,810 vehicles in Q1 2024, down 8.5% year-over-year and below the expected 457,000 deliveries expected by Wall Street. This marked the first year-over-year decline in quarterly deliveries since 2020.

Declining Demand?

Although the steep drop in deliveries was largely attributed to Tesla-specific production ramp-up issues, broader supply chain disruptions and increased competition in China are equally to blame.?

Now that the law of unintended consequences has reared its ugly head at Tesla, it turns out that certain decisions that seemed to be sound on paper didn’t play out as advertised.?

The Downside Of Owning The Ecosystem

Its monopolization of the repair market, ostensibly a vertical integration tactic that should give it a leg up on customer experience and share of wallet has led to price increases and lengthy delays for owners.?

In addition to long wait times, poor repairs, and lack of available parts at Tesla service centers, they complain about issues with Tesla's signature door handles, even reporting that they completely break off or, at best, are wonky on keyless entry.?

Meanwhile premature failures of critical components like suspension, steering, and wheels have led to safety issues and even accidents, including brakes slamming without warning, inflated range estimates that leave owners stranded, and Autopilot problems.

From a public relations and reputation standpoint, Tesla’s habit of blaming customers for "abuse" of vehicles, despite internal documents showing the company was aware of chronic defects doesn’t help.?

But that’s a Tesla problem. Holding down the costs for setting up home fast-charging stations which adds thousands to the initial EV purchase is everybody's problem.?

There may not be enough tax credits in the world to incentivize retailers to add fast charging stations to their “legacy” gas stations.

Per The Buzz EV News, the U.S. averages about 104 gas pumps per 1,000 road miles, compared to just 22 EV charging ports. While the number of public charging stations has increased significantly in the past decade, their uptime and reliability remain major problems.?

Not Enough Juice To Go Around

Reports indicate that up to 20.8% of EV drivers have encountered charging station failures, malfunctions, or other issues that prevented them from charging their vehicles.

In 2022, there were roughly 140,000 public EV chargers servicing 1.7 million EVs across the country which sounds like a lot. Until you consider how that breaks down.?

Classic Chicken and Egg Scenario

About 12 cars are competing for every charging plug. That’s a lot of demand. The station and convenience store owners are waiting for the time when there are enough EVs on the road to justify the colossal upfront investment of installing electric charging plugs.?

The upfront costs of installing fast chargers can range from $500,000 to $1 million per station. So, while gas stations are seen as a natural fit for EV charging infrastructure, as they already have the real estate, visibility, and many of the amenities that EV drivers need while charging, they are cautiously optimistic but not necessarily bullish on the EV trend.??

With over 50% of federally funded EV chargers being installed at gas stations and truck stops, major chains like BP, Shell, Chevron, Sheetz, and others have been actively installing EV chargers at their locations, with some setting ambitious targets to have thousands of chargers in the coming years.?

There are also issues around demand charges from utilities when many EVs charge simultaneously for an average of—let’s meet at a reasonable number—a half hour each. That’s a long wait time, possibly leading to long lines of cars reminiscent of the 1970’s gas crisis.?

To make EV charging profitable, gas stations are looking to offset costs by offering more amenities and services to EV drivers who spend five times longer charging than the average of 5 minutes for gas. This includes adding convenience stores, restaurants, and other services.?

This captive market of EV owners is potentially more lucrative than the drive by gas guzzlers as they may have nothing better to do than spend money while they wait for their cars to charge.?

Some smaller, independent gas stations have struggled to make the economics work and have opted not to install EV chargers. But the major chains are aggressively pursuing this transition, viewing it as a necessary long-term investment.?

So eventually the infrastructure will catch up with the demand and the transition from gas to electric and hybrid vehicles will be supported which is good news for Tesla and all the major automakers.?

The jury is still out on what percentage of Tesla’s trainwreck of a quarter is company specific versus systemic to the industry.? Whatever the culprits were, Tesla's stock price dropped 29% in Q1 2024, its biggest quarterly decline since late 2022.

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