US electric vehicle sales were 5.8% of the total in 2022, up from 3.2% in 2021.

Of this, Tesla sold roughly 65% (down from 72% the year before). Ford was number two with 7.6% and Hyundai/Kia third with 7.1%.

Tesla’s recent stock woes—down 65% last year, losing $950 billion in value—have been exacerbated by CEO Elon Musk’s quixotic purchase of Twitter and otherwise odd behavior. That some now see Musk as a rightwing traveller or troll has hurt Tesla’s brand and likely sales.

But the fundamental problem of Tesla stock has always been a valuation wildly out of proportion with revenue. Even now, the stock’s price-to-earnings ratio is 34.5, many multiples higher than virtually all other car manufacturers. (PEs for some others: Toyota 10, VW 4 or 5 (depending on the type of shares), Mercedes 3, GM 6, Ford 5.6.) This means that Tesla continues to have significant downside potential, the same thing I’ve warned about previously (when the stock’s PE was in the hundreds).

The company retains significant competitive advantages even as increasing competition begins eating into marketshare. Among these:

  • Thanks to their robust SuperCharger network, theirs are the only viable pure electric vehicles for long distance travel. Horror stories abound of other electrics attempting long distance travel on inferior charging networks. This may change as additional charging infrastructure is built out, but that’s unlikely to happen in the near term.
  • Their lack of dealer network cuts out the middle man and decidedly improves the customer buying experience. Almost anyone who’s had to deal with auto sales people knows why this is so. Legacy car manufacturers are in many cases legally bound to use auto dealers to deliver their vehicles, giving Tesla a long-term advantage.
  • Their over-the-air software updates for their cars provide significant value over time. Like the iPhone, Teslas improve over time because of software updates. Other car manufacturers have started to offer similar updates, but no one has it dialed in like Tesla.

Tesla’s ability to rapidly manufacture continues to grow, but this needs to lead to lower prices for consumers soon. Multiple reports indicate that Tesla is in supply/demand imbalance—they’re producing now more cars than they can sell—and their ramping manufacturing capabilities will only make this worse.

One example of the pricing problem: The 259-mile range Chevy Bolt may not be in the same league as a Model Y, but it also starts at $25,600 before a federal government tax credit of $7,500. The cheapest Model Y is $66k. With economics like this, most consumers will choose the Bolt.

Perhaps Tesla will ramp production on a long-rumored Model 2 that competes directly with the Bolt on price—a VW bug for the modern age if you will. But it’s hard to see how such a move doesn’t simultaneously erode demand for the Model 3 and Model Y.

I hope I’m wrong, but it looks to me like without substantially lowering prices on its core products, Tesla is in a bit of a pickle.

Update: Tesla has since lowered prices on all cars by up to 20%, roiling the EV market. There’s now talk of a price war because Tesla is once again price competitive.