This analysis was first published in SvD Näringsliv, in Swedish, on April 5th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Tesla dominated the EV market for years and was valued like a fast-growing internet company. Now that growth has stalled, a less flattering picture emerges — a fairly ordinary car company.

They were called the “Magnificent Seven.” Seven stocks accounting for 1.4 percent of companies on the S&P 500, but whose performance has outstripped everything else on the market. The seven companies given this epithet are Amazon, Apple, Google (Alphabet), Meta, Microsoft, Nvidia, and Tesla.

But now the seven are moving in different directions. One stands out particularly — in the negative sense. While Nvidia and Meta have risen 85 and 46 percent respectively so far this year, Tesla has seen its market value fall by a third. It has also been overtaken in size by a genuine stock market legend: Warren Buffett’s Berkshire Hathaway. Is old age proving wiser?

Perhaps. But the reasons for Tesla’s difficulties have less to do with novelty than with ordinary competition — and a strategy from an era that may now be over.

One of Tesla’s long-term goals was to achieve an annual growth rate of 50 percent from 2020 onwards. It started strongly, with 87 percent growth in 2021, followed by 40 percent in 2022. The share price multiplied during that period. The electrification of the car industry had gathered pace, and Tesla had a new model — the roomier Model Y — which opened up a new customer segment. Was there nothing that could stop them?

Not if you believed the CEO, Elon Musk. When asked about the 50 percent target — which looked set to be missed — during an analyst call, he said it was not “possible to have a 50 percent annual growth rate forever, because then you would exceed the mass of the universe.” Musk was technically correct, but the target had been set by him just three years earlier. The laws of physics presumably applied then too.

In recent days we have seen further evidence of Tesla’s difficulties. The number of cars delivered in the first quarter fell 8.5 percent compared with the same quarter the previous year. Deliveries also declined versus the last quarter of 2023. That is unusual. Growth has not merely stalled — it is going backwards. Hedge fund manager Per Lekander — who has shorted Tesla — goes so far as to say the company could go bankrupt.

There are several reasons for this. Competition in the EV market has increased substantially. From established players like Volkswagen to the rising Chinese giant BYD, the pressure is intensifying. Tesla’s models, despite some updates, are essentially the same ones they have had for years. The Model 3 launched in 2017 and the Model Y in 2020. In that time, competitors have caught up and offer many new models and alternatives.

Another problem is Tesla’s strategy of owning the entire production chain — all the way from the factory to final delivery to the customer. In a strong upswing, Tesla keeps all the profit, having no dealerships to share it with. But when growth stalls, the strategy can produce the opposite effect. Tesla bears all the costs — at every level. Factories, employees, and showrooms are fixed costs to manage regardless of how many cars they sell.

The final problem is valuation. Tesla’s trajectory between 2020 and 2022 most closely resembled an internet stock with explosive growth. The share was priced as if it were software — rapidly scalable, with an almost infinite market ahead of it. That picture was never quite accurate, but Tesla could perhaps have been more opportunistic while the conditions existed. A capital raise when the stock stood at 300–400 dollars would have delivered low dilution and an enormous war chest to work with. Such a cash pile would be useful now.

But building cars is not just software. And Tesla’s share price has more than halved from its peak. If they cannot find a way to reignite growth, the risk is that they begin to be seen — and valued — like any other car company. Were that to happen, Tesla could face an entirely new kind of challenge: a stock market collapse of a scale we have only seen the beginning of.