Enlarge/ Domestically made smartphones were much in evidence at the National People’s Congress in Beijing
Wang Zhao/AFP/Getty Images
Apple and Tesla cracked China, but now the two largest US consumer companies in the country are experiencing cracks in their own strategies as domestic rivals gain ground and patriotic buying often trumps their allure.
Falling market share and sales figures reported this month indicate the two groups face rising competition and the whiplash of US-China geopolitical tensions. Both have turned to discounting to try to maintain their appeal.
A shift away from Apple, in particular, has been sharp, spurred on by a top-down campaign to reduce iPhone usage among state employees and the triumphant return of Chinese national champion Huawei, which last year overcame US sanctions to roll out a homegrown smartphone capable of near 5G speeds.
Apple’s troubles were on full display at China’s annual Communist Party bash in Beijing this month, where a dozen participants told the Financial Times they were using phones from Chinese brands.
“For people coming here, they encourage us to use domestic phones, because phones like Apple are not safe,” said Zhan Wenlong, a nuclear physicist and party delegate. “[Apple phones] are made in China, but we don’t know if the chips have back doors.”
Wang Chunru, a member of China’s top political advisory body, the Chinese People’s Political Consultative Conference, said he was using a Huawei device. “We all know Apple has eavesdropping capabilities,” he said.
Delegate Li Yanfeng from Guangxi said her phone was manufactured by Huawei. “I trust domestic brands, using them was a uniform request.”
Financial Times using Bloomberg data
Outside of the US, China is both Apple and Tesla’s single-largest market, respectively contributing 19 percent and 22 percent of total revenues during their most recent fiscal years. Their mounting challenges in the country have caught Wall Street’s attention, contributing to Apple’s 9 percent share price slide this year and Tesla’s 28 percent fall, making them the poorest performers among the so-called Magnificent Seven tech stocks.
Apple and Tesla are the latest foreign companies to feel the pain of China’s shift toward local brands. Sales of Nike and Adidas clothing have yet to return to their 2021 peak. A recent McKinsey report showed a growing preference among Chinese consumers for local brands.
Enlarge/ Tesla Superchargers at Boanrka shopping center in Krakow, Poland on March 4, 2024.
Getty Images | NurPhoto
Tesla drivers who say the carmaker “grossly” exaggerated the ranges of its electric vehicles have lost their attempt to sue Tesla as a class. They will have to pursue claims individually in arbitration, a federal judge ruled yesterday.
Two related lawsuits were filed after a Reuters investigation last year found that Tesla consistently exaggerated the driving range of its electric vehicles, leading car owners to think something was broken when the actual driving range was much lower than advertised. Tesla reportedly created a “Diversion Team” to handle these complaints and routinely canceled service appointments because there was no way to improve the actual distance Tesla cars could drive between charges.
Several Tesla drivers sued in US District Court for the Northern District of California, seeking class-action status to represent buyers of Tesla cars.
When buying their Teslas, each named plaintiff in the two lawsuits signed an order agreement that included an arbitration provision, US District Judge Yvonne Gonzalez Rogers wrote. The agreement says that “any dispute arising out of or relating to any aspect of the relationship between you and Tesla will not be decided by a judge or jury but instead by a single arbitrator in an arbitration administered by the American Arbitration Association.”
The agreement has a severance clause that says, “If a court or arbitrator decides that any part of this agreement to arbitrate cannot be enforced as to a particular claim for relief or remedy, then that claim or remedy (and only that claim or remedy) must be brought in court and any other claims must be arbitrated.”
Tesla drivers argued that the arbitration agreement is not enforceable under the McGill v. Citibank precedent, in which the California Supreme Court ruled that arbitration provisions are unenforceable if they waive a plaintiff’s right to seek public injunctive relief. However, the McGill precedent doesn’t always give plaintiffs the right to pursue claims as a class, Gonzalez Rogers wrote. In the Tesla case, “the Arbitration Provision does not prohibit plaintiffs from pursuing public injunctive relief in their individual capacities,” the ruling said.
Tesla could still be hit with injunction
Public injunctive relief is “brought on behalf of an individual for the benefit of the public, not as a class or representative claim,” the judge wrote. Public injunctive relief is supposed to benefit the public at large. When an injunction benefits the plaintiff, it does so “only incidentally and/or as a member of the general public.”
In other words, a Tesla driver could win an arbitration case and seek an injunction that forces Tesla to change its practices. In a case won by Comcast, the US Court of Appeals for the 9th Circuit in 2021 stated that “public injunctive relief within the meaning of McGill is limited to forward-looking injunctions that seek to prevent future violations of law for the benefit of the general public as a whole, as opposed to a particular class of persons… without the need to consider the individual claims of any non-party.”
Gonzalez Rogers ruled that Tesla’s arbitration agreement “permits plaintiffs to seek public injunctive relief in arbitration.” The US District Court could also issue an injunction against Tesla after an arbitration case.
The Tesla drivers are seeking remedies under the California Consumer Legal Remedies Act (CLRA), the California Unfair Competition Law (UCL), and the California False Advertising Law (FAL). After arbitration, the court “will be able to craft appropriate public injunctive relief if plaintiffs successfully arbitrate their UCL, FAL, and CLRA claims and such relief is deemed unavailable,” Gonzalez Rogers wrote.
The judge stayed the case “pending resolution of the arbitration in case it is required to adjudicate any request for public injunctive relief… The Court finds that the Arbitration Provision does not prohibit plaintiffs from pursuing public injunctive relief in their individual capacities. To the extent an arbitrator finds otherwise, the Court STAYS the action as such relief is severable and can be separately adjudicated by this Court.”
Tesla arbitration clause upheld in earlier case
Tesla previously won a different case in the same court involving its arbitration clause. In September 2023, Judge Haywood Gilliam Jr. ruled that four Tesla drivers who sued the company over its allegedly deceptive “self-driving” claims would have to go to arbitration instead of pursuing a class action.
The plaintiffs in that case argued that “Tesla’s arbitration agreement is unconscionable, and thus [un]enforceable.” They said the arbitration agreement “is not referenced on the Order page” and “is buried in small font in the middle of an Order Agreement, which is only accessible through an inconspicuous hyperlink.”
Ruling against the plaintiffs, Gilliam found that Tesla’s “order payment screens provided conspicuous notice of the order agreements.” He also found that provisions such as a 30-day opt-out clause were enforceable, even though Tesla drivers argued it was too short because it “typically takes much more than 30 days for Tesla to configure and deliver a car.”
On Tuesday, OpenAI published a blog post titled “OpenAI and Elon Musk” in response to a lawsuit Musk filed last week. The ChatGPT maker shared several archived emails from Musk that suggest he once supported a pivot away from open source practices in the company’s quest to develop artificial general intelligence (AGI). The selected emails also imply that the “open” in “OpenAI” means that the ultimate result of its research into AGI should be open to everyone but not necessarily “open source” along the way.
In one telling exchange from January 2016 shared by the company, OpenAI Chief Scientist Illya Sutskever wrote, “As we get closer to building AI, it will make sense to start being less open. The Open in openAI means that everyone should benefit from the fruits of AI after its built, but it’s totally OK to not share the science (even though sharing everything is definitely the right strategy in the short and possibly medium term for recruitment purposes).”
Enlarge/ Tesla halted production at the factory near Berlin and sent workers home after a fire at a high-voltage pylon caused power failures throughout the region.
Krisztian Bocsi/Bloomberg via Getty Images
Tesla has had to suspend operations at its factory in Berlin, Germany, today. Early this morning there was a suspected arson attack on a nearby electrical transformer that led to the factory being evacuated, according to the German publication BZ. The fire has also left parts of Berlin without power, as well as towns in Brandenburg.
According to BZ, the transformer fire happened at 4: 50 am CET, with Tesla’s factory losing power an hour before the start of today’s shift. Other companies based at the industrial estate next to the Tesla factory have also had to suspend work.
The fire brigade and power company’s work to restore power was slowed by the discovery of a tent apparently occupied by climate activists protesting water pollution at Tesla’s factory, as well as a planned expansion of the site. A sign warning of unexploded ordnance resulted in the first responders calling in the bomb squad.
Power has since been restored to the surrounding communities but remains out at the industrial estate.
“If the first findings are confirmed, it is a perfidious attack on our electricity infrastructure, this will have consequences,” said Brandenburg’s minister of the interior, Michael Stübgen. “The rule of law will react to such an act of sabotage with all severity,” he said.
A left-wing organization called the Volcano Group has claimed responsibility for the fire. The same group committed a previous arson attack on the Tesla factory in May 2021, claiming that the automaker is “neither green, ecological nor social.”
It’s unwelcome news for the EV company, which saw its share price slide heavily on Monday after news that Tesla’s sales in China dropped 19 percent year on year in February.
Enlarge/ Tesla factory in Fremont, California, on September 18, 2023.
Getty Images | Justin Sullivan
Tesla must face a class-action lawsuit from nearly 6,000 Black people who allege that they faced discrimination and harassment while working at the company’s Fremont factory, a California judge ruled.
The tentative ruling from Alameda County Superior Court “certifies a class defined as the specific approximately 5,977 persons self-identified as Black/African-American who worked at Tesla during the class period from November 9, 2016, through the date of the entry of this order to prosecute the claims in the complaint.”
The tentative ruling was issued Tuesday by Judge Noël Wise. Tesla can contest the ruling at a hearing on Friday, but tentative rulings are generally finalized without major changes.
The case started years ago. An amended complaint in 2017 alleged that Tesla “created an intimidating, hostile, and offensive work environment for Black and/or African-American employees that includes a routine use of the terms ‘Nr’ and ‘Na’ and other racially derogatory terms, and racist treatment and images at Tesla’s production facility in Fremont, California.”
The plaintiffs’ motion was not approved in its entirety. A request for class certification was denied for all people who are not on the list of class members.
However, plaintiffs will have five days to provide an updated list of class members. Anyone not on the list “may if they wish seek individual remedies through filing civil actions, through arbitration, or otherwise,” the ruling said.
Plaintiffs “heard the n-word” at factory
A class-action trial is scheduled to begin on October 14, 2024, the same day as a separate case against Tesla brought by the California Civil Rights Department (CRD).
As Wise’s ruling noted, “The CRD has filed and is pursuing a parallel law enforcement action that is alleging a pattern and practice of failing to prevent discrimination and harassment and seeking an injunction that would require Tesla to institute policies and procedures that will do a better job of preventing and redressing discrimination and harassment at Tesla. The EEOC [US Equal Employment Opportunity Commission] has filed a similar action.”
In the class action, plaintiffs submitted “declarations from 240 persons who stated that they observed discrimination or harassment at the Tesla Fremont facility and that some complained about it,” Wise wrote. “Of the 240 plaintiff declarations, all stated that they heard the n-word at the Tesla Fremont facility, 112 state that they complained to a supervisor, manager or HR about discrimination, but only 16 made written complaints.”
Tesla submitted declarations from 228 people “who generally stated that they did not observe discrimination or harassment at the Tesla Fremont facility or that if they observed it then Tesla took ‘immediate and appropriate corrective action,'” Wise wrote.
Tesla also said it “created a centralized internal tracking system to document complaints and investigations” in 2017 and will rely on this database “to demonstrate that Tesla was aware of complaints about race discrimination and harassment and how it responded to the complaints.”
Enlarge/ More than 2,000 Tesla model-year 2023 Model Y and Model 3s have suffered steering failure, according to a new NHTSA safety defect investigation.
Sjoerd van der Wal/Getty Images
It’s been a rough week for Tesla. On Tuesday, a court in Delaware voided a massive $55.8 billion pay package for CEO Elon Musk. Then, news emerged that Tesla was being sued by 25 different counties in California for years of dumping toxic waste. That was followed by a recall affecting 2.2 million Teslas. Now, Ars has learned that the National Highway Traffic Safety Administration’s Office of Defects Investigation is investigating the company after 2,388 complaints of steering failure affecting the model-year 2023 Model 3 sedan and Model Y crossover.
Paint, brake fluid, used batteries, antifreeze, diesel
In 2022, the US Environmental Protection Agency fined Tesla $275,000 for violating the Clean Air Act, which followed a $31,000 penalty Tesla paid to the EPA in 2019. But EPA data shows that Tesla continued to violate the Clean Air Act in 2023.
And on Wednesday, Reuters reported that 25 Californian counties sued Tesla for violating the state’s hazardous waste laws and unfair business laws by improperly labeling hazardous waste before sending it to landfills that were not able to deal with the material.
The suit alleged that violations occurred at more than 100 facilities, including the factory in Fremont, and that Tesla disposed of hazardous materials including “but not limited to: lubricating oils, brake fluids, lead acid batteries, aerosols, antifreeze, cleaning fluids, propane, paint, acetone, liquified petroleum gas, adhesives and diesel fuel.”
Despite potentially large penalties for these industrial waste violations, which could have resulted in tens of thousands of dollars of fines for each day the automaker was not compliant, the counties and Tesla swiftly settled the suit on Thursday. Tesla, which had annual revenues of $96.8 billion in 2023, will pay just $1.3 million in civil penalties and an additional $200,000 in costs. The company is supposed to properly train its employees and hire a third party to conduct annual waste audits at 10 percent of its facilities, according to the Office of the District Attorney in San Francisco.
“While electric vehicles may benefit the environment, the manufacturing and servicing of these vehicles still generates many harmful waste streams,” said District Attorney Brooke Jenkins. “Today’s settlement against Tesla, Inc. serves to provide a cleaner environment for citizens throughout the state by preventing the contamination of our precious natural resources when hazardous waste is mismanaged and unlawfully disposed. We are proud to work with our district attorney partners to enforce California’s environmental laws to ensure these hazardous wastes are handled properly.”
An easy recall, a not-so-easy defect investigation
Tesla’s latest recall is a big one, affecting 2,193,869 vehicles—nearly every Tesla sold in the US, including the Model S (model years 2012–2023), the Model X (model years 2016–2024), the Model 3 (model years 2014–2023), the Model Y (model years 2019–2024) and the Cybertruck.
According to the official Part 573 Safety Notice, the issue is due to the cars’ displays, which use a font for the brake, park, and antilock brake warning indicators that is smaller than is legally required under the federal motor vehicle safety standards. NHTSA says it noticed the problem as part of a routine compliance audit on a Model Y in early January. After the agency informed the automaker, Tesla looked into the issue itself, and on January 24, it decided to issue a safety recall. Fortunately for the automaker, it can fix this problem with a software update.
A software patch is unlikely to help its other safety defect problem, however. Yesterday, NHTSA’s ODI upgraded a preliminary evaluation (begun in July 2023) to a full investigation of the steering components fitted to model-year 2023 Models 3 and Y.
NHTSA’s ODI says the problem affects up to 334,569 vehicles, which could suffer a loss of steering control. There have been 124 complaints of steering failure to NHTSA, and the agency says Tesla identified a further 2,264 customer complaints related to the problem. So far, at least one Tesla has crashed as a result of being unable to complete a right turn in an intersection.
A third of the complaints were reported to have happened at speeds below 5 mph, with the majority occurring between 5 and 35 mph and about 10 percent occurring above 35 mph (at least one complaint alleges the problem occurred at 75 mph). “A majority of allegations reported seeing a warning message, ‘Steering assist reduced,’ either before, during, or after the loss of steering control. A portion of drivers described their steering begin to feel ‘notchy’ or ‘clicky’ either prior to or just after the incident,” NHTSA’s investigation said.
NHTSA says there have been “multiple allegations of drivers blocking intersections and/or roadways,” and that more than 50 Teslas had to be towed as a result of the problem. The problem appears to be related to two of the four steering rack part numbers that Tesla used for these model-year 2023 EVs. They were installed in 2,187 of the vehicles, according to the complaints.
Enlarge/ Tesla sold 1.2 million Model Y crossovers last year.
John Paraskevas/Newsday RM via Getty Images
Tesla published its financial results for the last three months of 2023 this afternoon. The good news for the company is that it met its goal of delivering 1.8 million electric vehicles to customers, as Ars reported earlier this month when the automaker published that data. But a look at the company’s full financial results for Q4 are not as encouraging, and Tesla shares have fallen steeply in post-market trading.
Tesla brought in $25.2 billion in total revenue for Q4 2023, a year-over-year increase of 3 percent. Gross profits were down 23 percent for the quarter year over year, although net income (as determined by generally agreed accounting principles) increased 115 percent year over year. In large part, this was due to Tesla recording a “one-time non-cash tax benefit of $5.9 [billion] in Q4 for the release of valuation allowance on certain deferred tax assets”; non-GAAP income dropped 39 percent.
Free cash flow increased by 33 percent for the quarter, but its operating margin is almost half that of Q4 2022 at 8.2 percent.
For the entirety of 2023, total revenues stood at $96.8 billion, of which $82.4 billion came from automotive revenues, a 15 percent increase compared to 2022. Net profits for the year were 19 percent higher than 2022, but its margin for the year fell from 16.8 percent in 2022 to 9.2 percent in 2023, and for the year, free cash flow dropped by 42 percent.
The Model Y crossover is responsible for much of the company’s success in 2023—Tesla normally does not break out sales or deliveries between the Models 3 and Y, but revealed in its results slideshow that it delivered 1.2 million Model Ys last year, meaning that it also delivered about 500,000 Model 3 sedans. Plenty of price cuts helped make that happen in the US, Europe and China, where it is increasingly under pressure from the Chinese automaker BYD.
The company expanded its supercharger network last year by 27 percent, up to 5,952 stations with 54,892 ports. But not all of these are in North America—the US Department of Energy’s Alternative Fuels Data Center currently lists 2,339 Tesla Supercharger stations in the US and Canada, with 25,893 ports in total.
Tesla’s energy storage business continues to grow, deploying 14.7 GWh of battery storage, an increase of 125 percent year over year. But its solar activities continue to shrink, decreasing 36 percent year over year.
Unlike last year, or even last quarter, Tesla declined to issue specific guidance for the coming year other than saying it continues to work on its next-generation vehicle platform. In fact, the automaker warned that its vehicle growth rate may be “notably lower” in 2024. Earlier on Wednesday, unnamed sources told Automotive News that a compact crossover Tesla could appear in 2025.
Tesla’s stratospheric valuation—which remains far higher than any other automaker—has been built on promises of massive growth and tech-sector profit margins. With these results looking much more ordinary, analysts are starting to cool.
“Tesla delivered another underwhelming quarter, with a notable miss on automotive gross margins standing out the most. Tesla’s worrying China sales figures indicate demand for its vehicles is slowing more than expected in the face of rising competition from local EV companies, including BYD, Nio, and XPeng,” said Jesse Cohen, senior analyst at Investing.com. “I don’t think the price cuts are over, mainly for the reason that demand for its electric vehicles is still weak. The big question is if this is just a blip, or signs of a bigger shift among consumers as higher interest rates and a weaker economic backdrop discourage consumers from making big-ticket purchases.”
“After years of capacity-constrained volume and revenue growth, it seems Tesla is facing its first demand issues. The automaker has been cutting prices over the past year even as sales plateau—and the future doesn’t look bright,” said Karl Brauer, executive analyst at iSeeCars. “Updates to the Model 3 and the ramp up of Cybertruck production are positive news for 2024. But it’s hard to imagine those factors overcoming the increasingly competitive EV market, lower prices, softening sales, and compressed profit margin Tesla is facing over the next 12 months.”
Enlarge/ Look closely and you’ll spot the changes to the 2024 Tesla Model 3.
Tesla
Tesla might not have the most expansive range among automakers—the vast majority of its sales come from just two models. But it’s hard to deny that the company has sold a lot of those EVs; in some areas, the only car you might see more than the Model 3 would be the similar-looking Model Y crossover. But now, the eagle-eyed among you may spot some subtle differences on new Tesla Model 3s as the company finally starts selling the restyled version here in North America.
Tesla CEO Elon Musk unveiled the Model 3 in 2016, with customer deliveries starting the following year. Were Tesla any other automaker, a replacement model would almost certainly be in the works for 2025. But Tesla rarely uses the same playbook as its rivals, and it only gave the electric sedan a styling refresh after six years on sale rather than the more-usual four.
The restyled 3, codenamed Highland, went on sale in China in September 2023, and European customers have been able to buy one since last October. But changes to the federal tax credit for clean vehicles may have delayed the introduction of the revised Model 3 here in the US—for 2024, the car is no longer eligible for the credit.
The new headlight cluster takes up much less real estate.
Tesla
Opinions are subjective, but I’ve always felt like Tesla designed 90 percent of its cars, then phoned in the rear lights. Finally, that is no longer the case.
Tesla
The upgraded interior can have colored mood lightning now, a feature that’s common on many other EVs.
Tesla
The rear screen is for controlling the climate but also the infotainment, Tesla says.
Tesla
I get a very strong Polestar vibe from the way the top and bottom elements of the lights extend toward each other.
Tesla
That was then, and now the updated-looking EV is on sale here. The most obvious changes are to the lights. The headlight clusters are smaller than before, with more stylized daylight running lights in a similar vein to the Models S and X. At the rear, it seems someone in the studio has finally worked out how to draw a rear light cluster that looks finished—something that until now let down what has otherwise been a rather handsome car (although I do note a certain resemblance to Polestar’s rear lights in some of the images Tesla has provided).
Tesla says it has two new colors for the Model 3: ultra red and stealth grey. There are new wheel designs that it says are lower drag, which helps the range and wind noise. There’s also an updated interior with user-configurable LED lighting, a better sound system, and now an 8-inch touchscreen for the rear-seat passengers to interact with.
But the range has been simplified. The $50,990 Model 3 Performance (that we tested in 2019) is gone, and there are now just two versions on offer. The rear-wheel-drive Model 3 starts at $38,990 and has an EPA range estimate of 272 miles (438 km). The all-wheel-drive Model 3 Long Range, meanwhile, starts at $45,990 and has a range of 341 miles (549 km).
Getty Images | San Francisco Chronicle/Hearst Newspapers
Tesla found new homes for 1.8 million electric vehicles last year, it revealed on Tuesday afternoon. That will no doubt please CEO Elon Musk—it means the company has met its sales volume goal given to investors when it released its 2022 financial results at the end of last January.
Tesla built 494,989 vehicles in the last quarter of 2023, of which 18,212 were the more expensive but aging Models S and X. More importantly to the bottom line, Tesla built 476,777 Models 3 and Y. For the same three months, it delivered 484,507 EVs, of which 461,538 were the popular Models 3 and Y.
Cumulatively, Tesla built 1,845,985 EVs—1,775,159 Models 3 and Y and 70,826 Models S and X. And it delivered 1,808,581 EVs (1,739,707 Models 3 and Y; 68,874 Models S and X)—meeting the 2023 sales goal of 1.8 million cars sold.
That’s another record year for Tesla, but it’s also another year where the company has fallen far short of its targeted cumulative annual growth rate of 50 percent. Last year, it grew by 40 percent; this year, it grew by just 38 percent.
For that 50 percent CAGR to become a reality, 2024 will need to be a much stronger year than Tesla has had in the past. But that might prove easier said than done. BYD, a Chinese automaker, eclipsed Tesla in EV sales for the first time in Q4 2023, and Tesla’s market share is declining—albeit slowly—in the US as dozens of new EVs have gone on sale of late.
China and the US are Tesla’s two most important markets, and it seems investors have taken notice—Tesla’s share price has fallen almost five percent since the start of trading this morning.
Tesla has engaged in a series of price cuts over the past year or so, but it might soon want to think about making some more for the Model 3 sedan. According to the automaker’s website, the Tesla Model 3 Long Range and Tesla Model 3 Rear Wheel Drive will both lose eligibility for the $7,500 IRS clean vehicle tax credit at the start of 2024. (The Model 3 Performance may retain its eligibility.)
A new hiccup appeared at the start of December 2023, though—in the form of new guidance from the US Treasury Department regarding “foreign entities of concern.”
China is one of those foreign entities of concern (along with Russia, North Korea, and Iran), and the new guidance says that an EV cannot be eligible for tax subsidies if the components were manufactured or assembled in those countries, or if some of the battery minerals were extracted or refined in those countries (beginning in 2025). It also applies to batteries made by companies that are owned or controlled by foreign entities of concern.
Given the high degree of Chinese state involvement in that country’s auto industry, this will probably mean that fewer EVs will qualify for the tax credit next year.
Tesla is not forthcoming on its site about the reason for losing the tax credit for these Model 3 variants, but it’s not the only automaker to face this problem. Ford also believes the Mustang Mach-E will lose its $3,750 tax credit eligibility on January 1, 2024.
