Elon Musk faces challenges as Tesla loses its global electric-vehicle sales crown to China's BYD. Despite increasing sales, profit strains and growing trade protectionism threaten Tesla's once-dominant position. To navigate these challenges, Musk can redefine Tesla's role by making it an integral part of U.S. infrastructure.
While Tesla lags behind BYD, it continues to expand sales and gain market share, especially in China. However, Tesla's foundation seems precarious, particularly as it relies heavily on its privileged position in China, where its factory plays a pivotal role in profitability. The factory in Shanghai has significantly contributed to Tesla's automotive gross margin, reaching 30% in 2022.
Despite amicable relations with China's government, there's a risk of strained ties or increased competition from a burgeoning domestic industry. Musk could counteract this by exploring growth opportunities elsewhere, but geopolitical tensions and eroding profitability pose significant challenges.
In a worst-case scenario where Europe reinforces defenses for local automakers and China becomes less accommodating, Tesla's options are limited. Merging with companies like BYD would face regulatory hurdles, and Musk's futuristic promises, such as revolutionary AI and robots, remain distant.
However, Tesla has another avenue: emphasizing its role beyond being just a car company. Musk can leverage Tesla's success in the energy storage business, where gross margins have surged. With a 25% share of the U.S. storage market, Tesla's giant battery packs are increasingly sought after by state power utilities to address renewables' intermittency.
Additionally, Tesla's charging infrastructure, adopted by U.S. automakers, positions the company as a leader in the EV charging space. The service business that houses charging has witnessed growing profitability, and government subsidies further support its expansion.
By focusing on energy solutions and charging infrastructure, Tesla can become a direct beneficiary of national policies, akin to domestic tech giant Intel. This strategic shift would secure Tesla's importance domestically, providing a shield against global uncertainties.