Elon Musk’s decision to delay new Tesla models threatens to slow growth

Elon Musk Bets He Can Change Tesla Inc.

TSLA 2.08%

to one of the world’s largest automakers, while selling only a handful of models, contradicting the auto industry’s long-held belief that it takes a diverse array of updated models to attract buyers.

It’s another example of Mr. Musk’s resistance to industry orthodoxy — at a time when competition between electric vehicles has never been fiercer.

Tesla, which aims to increase vehicle deliveries by an average of 50% per year, has no plans to launch new models by 2022, Musk said this week. The company has postponed production of its highly anticipated Cybertruck pickup until 2023, he said, and is not working on the $25,000 car it previously teased.

Such slowdowns are likely to make it difficult for Tesla to maintain its rapid growth rate, said Bernstein analyst Toni Sacconaghi, who questioned whether demand for Model 3 and Model Y by 2024 would be enough to help the company meet its growth targets.

If Tesla were to increase vehicle deliveries by its target of 50% per year, it would likely need to deliver more than three million vehicles by 2024. 936,000 deliveries last year.

“There’s really no precedent for a one-model car selling 1.5 million units a year, let alone two from the same company,” said Mr. sacconaghi.

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The Corolla was the most popular vehicle in the world in 2020, with sales exceeding 1.1 million vehicles, according to an analysis by Bernstein.

Mr. Musk dismissed such concerns, telling analysts that Tesla’s advanced driver assistance technology would make its vehicles more useful and therefore more valuable.

“It is clear from the questions that the seriousness of Full Self-Driving is not fully appreciated,” he said. “If the cost of our cars didn’t change at all, we’d still be selling as many as we could make.” Full Self-Driving is a suite of advanced driver assistance features that Tesla sells for $12,000. It doesn’t make vehicles autonomous yet.

Tesla’s production delays were met with skepticism on Wall Street, where the stock plunged more than 11% on Thursday, the day after Tesla reported a record annual profit of $5.5 billion for 2021. The stock recovered some of that decline Friday and rose 2.1%.

“Clearly… the seriousness of Full Self-Driving is not fully understood.”

– Elon Musk

Tesla’s focus on ramping up production of existing models is likely to help the company boost its profits this year, but delaying the release of new models could ultimately make it more vulnerable to competition, analysts say. Auto companies typically aim to have 10 to 15% of their models recently had a major update in any given year, said Barclays analyst Brian Johnson.

mr. Musk has previously kept buyers waiting for new models. The company’s Model X sports vehicle, for example, was initially set to go into production in late 2013. About two years later, Tesla had only shipped a handful of SUVs.

This time around, buyers have a whole host of alternative electric vehicles to choose from. General engines Co.

GM -2.35%

has said it aims to introduce 30 new electric vehicles globally by 2025. This year alone, automakers are expected to launch more than two dozen battery-powered vehicles in the US, according to Bank of America. Among them is an electric version of Ford Motor Co.

f 0.46%

‘s F-150 pickup truck. Rivian Automotive Inc.,

which went public in November, was the first to enter the lucrative pickup truck segment and launched its R1T last year.

Ford and GM recently introduced their first electric pickup trucks. WSJ car reporter Mike Colias outlines the different strategies the two longtime automakers are pursuing to market their EVs. Photo Illustration: Alexander Hotz/WSJ

“Every day Tesla waits, there’s a new submission,” said Tyson Jominy, who leads the data and analytics practice at research firm JD Power.

Ford’s experience about a century ago could serve as a warning to Tesla, Mr Johnson, the Barclays analyst, said in a recent message to investors. Ford controlled about 60% of the US car market in 1921 thanks to the success of the Model T, he wrote. Ford focused on the Model T for the next few years, but while it did, rivals, including General Motors, released a wider range of cars that crumbled from Ford’s market share, which had fallen to 16% by 1927.

“With few additional details about future physical products, we see the risk of Tesla repeating the Ford Model T history of the 1920s,” wrote Mr. Johnson.

Tesla did not immediately respond to a request for comment.

Mr. Musk has made his mark by charting an independent course in the auto industry and defying doubters. He invested in all-electric cars when many industry stalwarts questioned their viability, eventually turning Tesla into the world’s most valuable automaker and himself into the world’s richest person.

Tesla’s ability to meet its production targets with its existing lineup of vehicles will likely depend heavily on the company’s success in China, the world’s largest auto market, said Mark Wakefield, a director at consulting firm AlixPartners LLP.

Tesla’s Shanghai factory became the company’s largest production facility last year, but Tesla is facing a tougher business environment in China, where it has become mired in government crackdowns on big tech.

Mr. Musk focused in Tesla’s analyst call on the promise of the company’s efforts to develop fully autonomous vehicles.

“Over time, we think full self-driving will become the main source of profitability for Tesla,” said Mr. Musk, adding that it would likely take rivals at least five years. to mimic Tesla technology.

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write to Rebecca Elliott at rebecca.elliott@wsj.com

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