Tesla’s Dominance Under Threat: Can Musk Fend Off the EV Posse?

Tesla (NASDAQ:TSLA) stock remains the world’s most valuable auto company, and by a wide margin.

With a market cap of $558 billion, it’s worth $230 billion more than Toyota Motor (NYSE:TM), which is second at $329 billion. But the lead is narrowing. Toyota stock is up 75% over the last year. Tesla’s is flat. No other car company is worth over $100 billion.

But after years of dominating the Electric Vehicle (EV) market, with investors insisting it’s more like Apple (NASDAQ:AAPL) than General Motors (NYSE:GM), the posse of competitors chasing Tesla may finally be closing in.

Or are they?

A Future Beyond Tesla

I wrote about TSLA stock a few weeks ago, when its market cap was $330 billion ahead of Toyota’s. I noted Tesla’s need for a product line refresh. I called CyberTruck a giant failure.

That’s not just because of the truck’s faults. It’s because its development took Tesla’s attention away from continuing to scale production of lower-priced cars.

That failure is illustrated by the Rivian (NASDAQ:RIVN) R3. It’s a little smaller than the Tesla Model Y. It looks better and (most important) it will cost less.

Even if the R3 never makes it into mass production, there are other challengers. BMW (OTCMKTS:BMWYY) sold 376,000 EVs last year, up 75% in a year, and its EVs are profitable.

Then there’s China’s BYD (OTCMKTS:BYDDF), whose $15,000 Seagull is so good American policymakers are desperately trying to delay its entry into our market.

BYD insists its coming plant in Mexico isn’t a bid to enter the U.S. market, that it will only be supplying Latin America. But market share is market share. Kill America’s export markets and you’re killing American brands.

The Musk Response

Elon Musk still has his fans. They cheered his threats to move Tesla to Texas after Delaware rejected his latest stock grant proposal.

But making yourself the face of a company has its downsides. Musk, once a hero to environmentalists, found himself slamming “eco-terrorists” when electricity to Tesla’s German plant was sabotaged. His personal politics have made him a villain to people who should be Tesla customers.

What Musk believes may not be relevant to the Tesla investment case. What is relevant is his devotion to the company. This has been continuous in good times and bad. So long as Musk’s favorite charity is Musk, investors will forgive a lot.

Wedbush analyst Dan Ives, who has succeeded Cathie Wood as the tech industry’s most prominent bull, is telling investors to stay “long and strong” in Tesla. Ives has been right on many things lately, especially Artificial Intelligence (AI).

TSLA stock has its own AI, called Grok, which it intends to integrate with its cars. It’s all part of Musk building an “ecosystem” around Tesla, with charging, insurance, and service all part of the package. He’s clearly winning on charging.

The Bottom Line

Tesla still dominates the EV market. It’s good to be the King.

But any crown hangs heavy on its wearer. Every success brings rising expectations. Apple is up 13% in the last year, but that’s half the gain of the S&P average.

There are signs that the stock market is broadening, and that 2024’s big gains won’t be in the “Magnificent 7.” This includes the Cloud Czars, Nvidia (NASDAQ:NVDA), and Tesla.

Tesla faces many challenges. Will its cars really drive themselves, and what will it cost Tesla if they can’t? Can it maintain its lead in batteries alongside partner Panasonic (OTCMKTS:PCRFY)? Might CATL, which also supplies Tesla, gain control?

I don’t know. I do know there are enough questions here to give me pause. The posse is coming for Tesla, and they’re hot on its trail.

As of this writing, Dana Blankenhorn had LONG positions in AAPL and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.