Tesla’s Stock Struggles Amidst Rising Competition
Tesla’s stock has experienced a significant decline, dropping 17% this year and plummeting 33% from its peak all-time high in December of the previous year. This downturn has positioned Tesla as the largest loser among the prominent US tech giants commonly referred to as the Magnificent Seven stocks. Several factors have contributed to the fall in Tesla’s share price, including a general retreat in US tech stocks, Elon Musk’s involvement in acquiring OpenAI, and the recent announcement from BYD regarding its partnership with DeepSeek.
Additionally, the initial optimism surrounding former President Trump’s support for Tesla’s self-driving ambitions has notably diminished.
The Biggest Challenge – BYD’s Expanding Market Presence
On Monday, BYD, the leading electric vehicle manufacturer in China, made headlines by announcing a partnership with DeepSeek to advance its autonomous driving technology. This development has caused unrest among Tesla’s investors, as well as those holding shares in other Chinese automakers like Xpeng and Nio, which led to a sharp selloff in their stocks. On Tuesday, Tesla’s shares dropped more than 6%, though there was a slight recovery the following day. In contrast, BYD’s shares soared to a new record high on that same day.
Tesla’s primary concern revolves around its competitiveness in the full self-driving (FSD) market, especially in light of BYD’s advancements. DeepSeek’s artificial intelligence (AI) model is viewed as a significant turning point in the ongoing tech rivalry between the US and China. Notably, DeepSeek’s R1 model has demonstrated performance that is comparable to, if not slightly superior to, those developed by leading US tech companies, particularly OpenAI’s ChatGPT. Remarkably, DeepSeek has achieved this with an investment of only $600 million, a fraction of the billions that US tech giants have poured into similar projects.
Autonomous vehicles, particularly in the form of Robotaxis, are central to Tesla’s growth strategy. Currently, Tesla’s FSD vehicles still require human oversight when operating on the road, and the company is in the process of seeking approval for public road usage in China. BYD’s implementation of DeepSeek’s R1 AI model, branded as the DiPilot system, poses a serious threat to Tesla’s FSD technology, especially considering its potential for lower operational costs. The fourth quarter of 2024 proved disappointing for Tesla, as the company fell short of market expectations in both deliveries and earnings, making it imperative for Tesla to expedite its autonomous driving initiatives.
Concerns About Elon Musk’s Diversified Focus
On the same day, reports surfaced indicating that Tesla CEO Elon Musk is spearheading a group of investors aiming to acquire OpenAI for an astonishing $97.4 billion (€93.68 billion). OpenAI, recognized for developing ChatGPT, currently operates as a non-profit organization, despite CEO Sam Altman’s aspirations to take it public. In addition to his role at Tesla, Musk heads SpaceX, xAI, and the social media platform X (formerly Twitter), which he purchased over two years ago. Furthermore, he serves as a “special government employee” in the White House, assisting former President Donald Trump with initiatives focused on cost reduction.
These developments have raised significant concerns regarding Musk’s ability to focus on Tesla amid his myriad of ventures.
The Decline of the Trump Trade
Tesla was once one of the primary beneficiaries of what was termed the Trump Trade following the election, with its stock price nearly doubling at its peak on December 18. However, this year’s downturn has seen the stock erase most of those gains. This decline has been further exacerbated by a broader pullback in US technology stocks, largely driven by profit-taking and the ramifications stemming from the DeepSeek announcement. Currently, the US technology sector stands as the largest loser in the S&P 500, while Chinese tech firms have experienced a surge in their stock prices, particularly following the launch of a cost-effective AI model by a Chinese startup.
