The latest financial report released by Tesla has stirred up quite a debate in the automotive world, especially following predictions made by CEO Elon Musk during a call in April 2024. Musk's ambitious forecasts projected that Tesla's sales in 2024 would exceed those of previous years. However, the reality has painted a different picture; Tesla reported a global delivery figure of 1.7892 million vehicles for 2024, signaling a 1.1% decline compared to the prior year. This marks the first downward shift in Tesla's sales after a remarkable decade of consecutive growth. The figures demonstrate a stark contrast to the record highs seen in 2023, resulting in a reduction of approximately 19,400 vehicles. The market recognized this development swiftly, marked by a 6% drop in Tesla's stock price on the day of the announcement.

Diving deeper into market segments, the Chinese market emerged as a notable outlier, witnessing an 8.8% growth in delivery numbers amidst a broader global slowdown in electric vehicle sales. A report from Huaxin Securities highlighted that the primary reasons for Tesla's declining figures were rooted in the European market, which has been particularly challenging. Between January and November 2024, Tesla's deliveries in the U.S. fell by 8.0%, while European sales saw a more profound decline of 13.7%.

When breaking down the sales by model, the Model 3 and Model Y continued to dominate Tesla's offerings, making up approximately 1.7041 million of the total sales. Yet, despite this stronghold, challenges loom large as Tesla grapples with the slow progression in updating its flagship models. Competitors are steadily encroaching on Tesla's territory with newer releases, consequently nibbling away at its market share. The Model 3, now a veteran in the market, received a refresh only after seven years, while the Model Y, since its rollout in 2020, has not yet seen a significant upgrade. Opponents like the Zhi Ji LS6 and XPeng MONA 03 are targeting the Model Y’s comfort zone with their aggressive strategies.

Despite setbacks in vehicle sales, Musk appears undeterred, striving to instill confidence among investors. By emphasizing that Tesla is not merely an automotive enterprise but also a burgeoning player in artificial intelligence (AI) and software, he aims to refocus market perception. According to Dan Ives of Wedbush Securities, “The AI and autonomous driving potential for Tesla is worth at least a trillion dollars,” a statement that certainly elevates expectations for the company’s future ventures outside traditional vehicle sales.

As competitors continue to narrow the gap, an alarming trend can be seen in sales figures. BYD, Tesla's closest competitor, sold 234,000 units fewer in 2023. Fast forward to 2024, and BYD managed to close that gap dramatically to just 24,000 units. In an overview spanning the years 2022 to 2024, BYD's figures indicate astounding growth rates of 155.1%, 61.8%, and 41.26%, respectively, in stark contrast to Tesla’s rather lackluster growth of 40%, 38%, and the current decline of 1.1%.

However, rather than adopting a defensive stance, Tesla is planning a bold move for 2025 with the introduction of the more affordable Model 2, projecting an increase in sales by 20% to 30% for that fiscal year. Such a strategy aims to combat the fierce competition, particularly in the rapidly evolving Chinese market.

In juxtaposition to other multinational automotive giants who have faltered in their grip on the Chinese market, Tesla has managed to flourish. Data from the China Passenger Car Association demonstrates that in December 2024, Tesla achieved sales of 83,000 units in China, marking a 12.8% month-over-month increase. Cumulatively, Tesla sold over 657,000 units that year, achieving an 8.8% growth rate, reaching new record heights for the brand.

The staggering growth of new energy vehicles within China has played a significant role in Tesla's success. In 2024, for the first time, China's annual production and sales of new energy vehicles surpassed 10 million units, with a consistent penetration rate exceeding 50% for passenger electric vehicles for five consecutive months. This trend bestows a vigorous contribution to Tesla’s figures and vibrancy in the market.

Nevertheless, the overall downward trajectory of Tesla's European sales significantly influenced the overall decline in 2024 sales. Although Tesla has not released its specific market share in Europe, research from Huaxin Securities revealed that deliveries in the region fell to 283,000 units, a drop of 13.7% year-over-year. The European Alliance of Automotive Manufacturers (ACEA) indicated a shocking 43.9% decrease in sales of pure electric vehicles in the EU by August 2024, marking a continued decline over four months.

The decrease can be attributed to a variety of factors. The slow phase-out of government subsidies for electric vehicles, heightened consumer preference for hybrid models over fully electric ones, and various infrastructural issues, such as inadequate charging networks and rising electricity prices, have significantly impacted demand in both Europe and the U.S. markets.

Add to that mix strong competition in the European electric vehicle sector. In July 2024, BMW dethroned Tesla by delivering 14,900 units, securing the top spot in the European electric car market.

As Tesla expands and evolves, it faces mounting challenges even in its stronghold—the Chinese market. The Model 3 saw its first revamp in 2023, with a performance version launched only in 2024, while the Model Y has experienced no substantial redesign since its debut in 2019. Musk's ambitious plans to launch a “budget vehicle,” the Model 2, remain shelved since he first proposed it back in 2020, with expectations set for three years ahead. Yet as of 2024, Tesla's vehicle manufacturing progress appears stagnant.

Moreover, numerous rivals have begun to penetrate the market with vehicles featuring superior configurations tailored for the popular 200,000 RMB segment—a market originally dominated by Tesla. From September to October of 2024, six firms—including Leiduo, Zeekr, Zhi Jian, Zhiji, Avita, and Lantu—unveiled their electric SUVs, specifically designed to compete with the Model Y, establishing a convergence of competition reminiscent of multi-directional assaults. In addition to the Model Y, several offerings similar to the Model 3 have emerged, including BYD’s Seal, NIO’s ET5, and XPeng’s MONA M03.

Despite the burgeoning competition, neither the Model Y nor the Model 3 has encountered any replacements that could replicate their market success. As of November 2024, the Model Y maintained a steady monthly sales figure of around 38,000 units. Data from third-party research firm Jielan Road showed that in November, among the six competitors targeting the Model Y, Zeekr 7X led with 12,014 units sold, while the Model Y achieved an impressive monthly total of 45,000 units during the same timeframe.

Looking ahead, Tesla's challenges will intensify in 2025. 2024 saw the rise of Xiaomi as a surprise contender, with monthly sales exceeding 17,000 units, poised to launch its second vehicle, the Xiaomi SU7, targeting the Model Y. Traditional automakers such as BMW and Mercedes are also ramping up their efforts in the smart vehicle arena, signaling a pushback against Tesla's dominance.

To reclaim its competitive edge, Tesla is betting on more affordable models, with Musk anticipating a launch in the first half of 2025. On the production front, CFO Vaibhav Taneja has suggested expansions at the Shanghai Gigafactory and the continued growth of the Supercharger network. Musk claimed in a conference call that he foresees vehicle growth rates between 20% and 30% for the upcoming year.

Despite witnessing its first annual decline in a decade, Tesla's stock market performance has remained robust. Following the announcement of annual sales figures and a 6% dip in stock, Tesla’s price soared by 8.22% the next day. Overall, Tesla's shares have rallied by an impressive 62.5% throughout 2024.

Underlying this optimism in the market may be Musk’s repeated assertions regarding the company’s emphasis on AI. During the Q1 2024 earnings call, he positioned Tesla more as an AI or robotics initiative rather than just an automotive manufacturer. Furthermore, during the June 2024 shareholder meeting, Musk reiterated that Tesla isn't solely an electric vehicle company but is paving the way as a leader in real-world AI applications, noting that the sector has already become profitable in other operational spheres.

The direction of Tesla's AI projects is noteworthy, as Musk prioritizes advancements in autonomous driving (FSD), the Dojo supercomputer, and humanoid robots (Optimus). The Q2 2024 earnings report emphasized developments in these domains, focusing on the Robotaxi concept and Tesla's FSD as core areas of growth and innovation beyond the automotive business.

Updates to the FSD occurred twice in 2024, propelling a great deal of interest across autonomous driving companies. In March, Tesla launched the "end-to-end" version V12 of FSD, stimulating competition in the automotive industry. Later, in November, FSD V13 was released.

The Robotaxi serves as an alternative business model for autonomous driving technologies. In October 2024, Tesla introduced the Cybercab—a vehicle designed for autonomous operation—set to begin production in 2027. This initiative shines a spotlight on the commercial viability of Level 4 autonomous vehicles.

Yet, some skeptics argue that Tesla may not lead the Robotaxi field, viewing this initiative as merely a strategy to bolster its stock price amidst increased competition. In China, companies like Baidu and Pony.ai are already piloting their Robotaxi projects.

As automation heralds transformations within the automotive sphere, Musk’s fascination with humanoid robots shines through. He anticipates a future where humanoid robots surpass human populations, predicting a market scale for the Optimus robot between $25 trillion to $30 trillion.

In the Q2 2024 conference, Tesla indicated advances in its second-generation humanoid robots, which are already engaged in battery-related tasks in the factory. By late 2025, thousands of Optimus robots are expected to operate within Tesla’s manufacturing plants, extending their reach to external customers by 2026.

As competition focuses increasingly on AI, Chinese firms are also accelerating their innovations. XPeng has announced ambitions to roll out several AI-integrated models by 2025, transitioning towards an AI-centric manufacturing philosophy. Meanwhile, Li Auto is establishing dedicated AI teams to join the race. Whether Tesla can carve out a new growth trajectory through its AI endeavors remains to be seen as the market landscape evolves.