Tesla’s Fall Is a Textbook Business 101 Mistake.
Don't take sides, ever.
I'm sure you've read some news about Tesla having some declines in future sales that are going to happen due to the fact that Elon Musk is working on the political side of things, to say the least.
It's a series of unfortunate events when you come to think about it.
Elon Musk's participation in politics.
Then the big problem happened with the Tesla Cybertruck that led them to recall almost all of the ones that were released after a very long waiting time.
BYD, their competitor, has passed them in annual sales, reaching over $100 billion.
It's just one unfortunate event after the other. Now, Tesla is in freefall.
It's happening right now because, what happens is a company starts to lose momentum, customer interest, sales, and innovation. Then it starts showing up on their financial statements 6-12 months later.
Now Tesla's getting hit and we're going to see in around six months when they start showcasing their financials how much they were really affected by this whole situation.
The Political Impact
But it is a fact that Canada and Europe are responsible for around 16 or 17% of Tesla's sales. And both those regions are extremely unhappy with Tesla as a product due to the political aspect of it, and many of them would decide to not buy a Tesla or to even return their Teslas.
The real problem, though, is that Tesla used to have a first mover's advantage of it being the best car in the market, but the truth is, we reached a level right now in the EV market that there are competitors that are almost as good as Tesla as a concept.
So it's a win for those competitors.
Now if it happens that Tesla keeps free falling as it is right now, then history will remember this as a textbook Business 101 mistake, which is getting too involved in politics.
Tesla's Existing Challenges
But let's back up. Tesla's already been struggling before all of that, but not that much. As a company it was performing well, BYD and other competitors were closing in on it. I think BYD even bypassed its sales in one of its quarters.
So they were in a competitive landscape that is critical and they had to start working on a product that is creative. The Cybertruck was in the making for a very long time. People waited for a very long time and eventually they were not that impressed with the Cybertruck, and then the recall happened.
So as a company performance, just away from politics, Tesla was doing just about okay. It could have been said that Tesla was slowly declining in the larger landscape, but we'll never know for sure.
Musk's Political Gamble
Now what Elon Musk did is he threw a lifeline for Tesla, but this lifeline is sort of like an unsure opportunity. He went all political, which led to the fact that a lot of people invested in Tesla and rewarded him for that matter.
His company's valuation went from $700 billion to $1.4 trillion. That's double. So the company would work on their 24/7 on their deliveries and innovation to reach $700 billion of market valuation. Then suddenly, with a few tips and tricks from Elon Musk in the political field, bam, they reached $1.4 trillion.
But here's the thing when it comes to politics:
Entrepreneurship, and I've said this before, entrepreneurship is a game of the long term.
Politics is always a game of the short term.
The Consequences
So after a few more involvements in the political aspect, Elon Musk has made some mistakes, but he always does that.
He did that before on Twitter.
He did that before with Tesla.
But they were all mistakes from a CEO that are only affecting people who really follow Tesla up close.
Now with the political position that he's in, all eyes are on him, so such mistakes are not really going to be let go so easily. Hence, the company’s valuation is dropping. Then there is the recall that led to further drop.
The drop is in continuous form and their valuation has dropped down to $900b at the moment of writing this. A company's valuation in the long term always increases if they're performing well, and in terms of performance, what happened right now with the hit of Europe and Canada, plus the reputation that Elon Musk is getting, is going to affect Tesla strongly and we're going to see that very soon.
Tesla has fallen to a textbook Business 101 mistake and we'll truly know whether this fall is survivable or not in a few years.
So what exactly is the business book 101 mistake? You failed to specify.