Tesla stock is down a whopping 43% this year.

In this article you we’re going to tell you why.

This is a valuable lesson in how business fundamentals and uncertainty can drive stock prices.

Our analysis is based on the article “Tesla shareholders braced for worst results in 7 years” originally posed by The Financial Times.

Let’s get into it!

Article Summary: 

• Tesla shareholders are anxiously preparing for what might be the company's most disappointing quarterly results in the past seven years.

• Amidst a backdrop of declining sales figures and intense competitive pressures, Tesla is also possibly considering a significant shift in its business strategy.

• The company might pivot from its earlier plans to develop a more affordable electric vehicle, the so-called Model 2, to focus more on the advancement of self-driving "robotaxis."

• This strategic reorientation is causing investors to reconsider Tesla’s future role—whether it will continue as a major car manufacturer or transition into a technology firm specializing in autonomous systems.

Educational Insights: 

Understanding Business Strategy Shifts:

• Strategic Pivot: This refers to a fundamental change in a company’s business strategy, which can include introducing new products, targeting different markets, or adopting new technologies. Tesla’s potential shift towards focusing on autonomous driving technology over producing a new, lower-cost electric vehicle model is an example of a strategic pivot. Such shifts are often responses to changes in market conditions, technological advancements, or internal company goals.

Impact of Market Conditions:

• Demand and Competition: Tesla's current situation underscores the critical impact of external factors such as consumer demand and competitive forces on a company's strategic decisions. Decreased demand for Tesla’s vehicles and increased competition in the electric vehicle market are influencing the company to possibly rethink its growth strategies and product focus.

Investor Reactions and Expectations:

• Shareholder Concerns: As Tesla contemplates a shift in strategy, shareholders are keenly interested in the potential of its autonomous vehicle technology and its implications for the company’s future. Investors are evaluating how these changes might affect Tesla's market position, profitability, and overall stock value, reflecting the broader implications of strategic pivots in influencing investor confidence and market perceptions.

Jargon Explained:

• Robotaxis: These are autonomous vehicles designed to function as taxis, operating without human drivers. This technology combines robotics and artificial intelligence to navigate and transport passengers safely.

• Gross Margin: This financial metric indicates the percentage of total sales revenue that exceeds the cost of goods sold. It is a critical indicator of a company's financial health and operational efficiency, showing how much of the revenue is retained as gross profit after accounting for the direct costs associated with producing goods and services.

• Full Self-Driving (FSD): This is a technology developed by Tesla that allows its vehicles to operate autonomously, meaning the cars can drive themselves without human input. However, despite its name, FSD currently requires the driver to remain alert and ready to take control at any moment, as the technology has not yet reached full autonomy under all driving conditions.