The business situation in China is becoming critical for Tesla as it faces significant market risks. In a sudden layoff event, Tesla employees found out they were laid off when their work badges stopped working, while suppliers learned about the production cuts through a PowerPoint presentation during a meeting. On the PPT, suppliers saw that the anticipated production days per week had been reduced from a peak of 6.5 days to just 3-4 days, indicating a 40% cut in orders from the highest point.

Following this, Tesla carried out a broader series of layoffs, with several executives leaving the company in succession, and the Supercharger team facing substantial cuts, clearly showing that the company was not merely making a simple business adjustment but was in fact confronting a long-brewing severe crisis. On April 15th, Tesla CEO Elon Musk announced a 10% global workforce reduction. Within a month, key executives including Drew Baglino, Senior Vice President of Energy and Powertrain, Rohan Patel, Vice President, and Rebecca Tinucci, Senior Director in charge of the Supercharger network, and others left the company. According to inside employees, the actual layoff percentage might be even higher, possibly reaching 20% in China and 15% in North America.

The crisis was not unanticipated. Tesla previously enjoyed a surge in share price by 2000%, at one point surpassing the combined market value of 11 multinational automotive giants including Honda, Volkswagen, and General Motors. However, since the end of 2021, its market value plummeted from a peak of $1.235 trillion to $574.4 billion, shrinking by nearly 5 trillion yuan. After nearly two years of pricing competition, Tesla's annual net profit saw its first decline in seven years in 2023. Moreover, in the first quarter of 2024, global new vehicle deliveries were 387,000 units, a decrease of 8.53% year over year and 20.2% sequentially, marking the first time that Tesla has shown clear signs of decline since becoming the global electric vehicle sales leader.

In the face of increasingly harsh global market conditions, car manufacturers like Mercedes-Benz, General Motors, and Ford have already announced a slowdown in electrification efforts at the beginning of the year. The Chinese market dealt an especially heavy blow to Tesla, not only providing a third of its sales and more than half of its production but also facing fierce competition from new electric vehicles like the Xiaomi SU7, Zhiji L6, and Jikrypton 001. Tesla's Model 3 saw a drop in sales to 5,065 units in April. Meanwhile, Musk's involvement in Tesla has been waning, as he shifts his focus to other endeavors such as AI, SpaceX, and Twitter. Engineers feel the various challenges firsthand in projects, noting a multitude of projects and heavy workloads but seeing few new models released. Musk, who once held weekly meetings to review new vehicle development progress, now only holds them once each quarter for the past two years.

This entrepreneur, once regarded as a barometer for the global new energy vehicle market, seems to have reached a crossroads in his fate. In the Chinese market, popular new energy vehicle models usually measure their lifecycles in half-year intervals. However, Tesla's current main sales models, the Model 3 and Model Y, which were launched in 2016 and 2019 respectively, urgently need updates to keep pace with the increasingly fierce market competition.

New products, serving as a key tool for market expansion, appear to be a continuously missed opportunity for Tesla. Back in 2018, Elon Musk claimed that he planned to launch an entry-level electric vehicle priced at $25,000 within the next three years. Envisioned as a compact, economical vehicle aimed at the mass market, Musk's aforementioned "new car" has still not hit the market to this day.

The biography "Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future" mentioned that Musk himself hinted at the possibility of launching this new model in 2020, but then shelved the plan. Over the next two years, he repeatedly dismissed the idea, believing the product lacked sufficient appeal. Musk's contradictory attitude towards the new car has made his situation increasingly precarious.

According to insiders, Tesla originally had two new car projects, codenamed NV91—a sedan, and NV93—an SUV, which could be seen as scaled-down versions of the Model 3 and Model Y respectively. Especially NV to be produced by August 2025. However, in a meeting this February, both projects were canceled.

Analysts close to the project suggest one reason for halting these car model projects could be that their main target market, China, has been dominated by low-cost products from companies like BYD, which has led Tesla to lose confidence. The China regional team would regularly report local market conditions to headquarters, including vehicle configurations, performance, and pricing.

At the beginning of April, some media outlets reported the cessation of the aforementioned car model projects, followed by a significant drop in Tesla's stock price. Responding swiftly, Musk denied these reports and announced a new plan: Tesla plans to launch a fully autonomous Robotaxi service on August 8. To materialize this plan, a team is fully committed to the development of Robotaxi, expecting to introduce a two-door small SUV and aiming to officially launch it by the end of next year. The originally planned Model Q has been reimagined as a simplified version of the Model 3. This aligns with Musk's statements during the quarterly earnings call, where he indicated that the low-cost vehicle initially set for production in the second half of 2025 might start its manufacturing process as early as the second half of this year or in 2025.

Although there are many voices in the market suggesting that the Model Q slated for early production will be the $25,000 model, in reality, the model has changed. Insiders revealed that even if this new car also bears a price tag of $25,000, its gross margin would be lower than the previously planned Model Q. Tesla has also specially designed a six-seater version of the Model Y for the Chinese market, which adds an extra seat on the basis of the Model Y while maintaining the same chassis. If approved by senior management, this model could be launched into the market this byear. However, due to the potential lack of competitive interior space, there is not complete internal confidence in whether it will receive approval for launch.

Industry news indicates that Tesla's battery business line reports directly to the US headquarters, leading to a potential risk of restructuring for the battery department in China. Sources revealed that communications barriers between the headquarters and China region have led to more significant issues following the notification of supplier order reductions. Suppliers often encounter difficulties when seeking to communicate with Tesla, as the Chinese region's role is more about implementing decisions made by the US headquarters.

According to a core component supplier, when Tesla North America reaches a compromise with suppliers, the solution often proposed is for suppliers to ship components to China, where the Chinese region is responsible for finding warehousing for storage. However, directives for subsequent handling are often lacking. This leaves suppliers in a state of production uncertainty, forcing them to facilitate communication between the United States and China departments.

Looking back to early 2020, when the domestically produced Model 3 was launched, Tesla's position in the Chinese market was unshakeable. However, over time, many competitors such as BYD's Song Pro and NIO are gradually eroding Tesla's market share. While Model Y sales remain strong, the market has seen a surge of competitive models with more attractive pricing.

Regarding Tesla's pricing strategy for entry-level models, if referring to Musk's statement in 2018 and launching a $25,000 model in 2021, its competitiveness might be outstanding. But in reality, the Chinese market now has many high-configuration models within the 180,000 RMB price range, making Tesla's product advantage less evident.

Tesla seems somewhat slow in market perception, failing to respond promptly to the rapid progress and changes in the Chinese electric vehicle market. For example, concerning ultra-fast charging technology and new lithium iron phosphate batteries with better low-temperature adaptability – although they can significantly enhance the driving range and environmental adaptability of electric vehicles – they have not received sufficient attention at Tesla's headquarters.

It has been pointed out that Tesla's North American headquarters, based on market data analysis, believes that owners will stop to charge every 300 km for about 18 minutes each time, a perception that may cause Tesla to miss an accurate grasp of external changes. Tesla's focus on 4680 battery technology has led to certain blind spots in competitive recognition, as its competitive strategy is not market-oriented but rather aimed at physical limits.

In September 2020, Tesla CEO Elon Musk unveiled a major innovation – a brand-new battery design model 4680. This battery employs revolutionary technology, significantly increasing the energy density of a single cell by five times while reducing manufacturing costs by 14%. Moreover, electric vehicle models using this battery are expected to see an impressive 16% increase in driving range on a single charge.

Investing huge funds does not mean that all technical challenges can be easily solved, and Tesla has also encountered hurdles in the development of its 4680 battery. Especially, the dry electrode technology of the battery, where the technology for the anode part has not yet matured, and the dry technology for the cathode is even more difficult to break through. The current situation is that although the 4680 battery has been used in Tesla's Cybertruck pickup model, these batteries are still only "B samples" manufactured on the trial production line and have not reached the mass production stage. Generally, battery development goes through different production stages from A-sample to D-sample, with C-sample batteries being products from the mass production line, and D-sample aiming for production efficiency while ensuring a certain yield rate.

After nearly four years of tireful effort, the progress of the 4680 battery still falls short of Musk’s original grand ambitions. Nonetheless, Tesla has not given up on this technology. Reportedly, at the beginning of this year, Tesla internally set an ambitious target—to ensure the cost of the company's own 4680 batteries is lower than those provided by suppliers, with plans to achieve this goal by the end of the year.

Tesla's old partners in the supply of 4680 batteries include Panasonic and LG Energy Solution. Insiders reveal that the 4680 batteries produced by these two companies utilize the mature wet process technology, avoiding the issues brought by dry electrode technology, and thus their battery costs are very low, approximately 0.9 to 1 Yuan per Watt-hour. In contrast, the current yield rate of Tesla's own 4680 batteries is only about 70%, with costs nearing 2 Yuan per Watt-hour.

While Tesla is dedicated to developing the 4680 battery, battery products supporting ultra-long endurance and ultra-fast charging technology have emerged in the Chinese market. NIO started preparing a project for an ultra-long endurance 150-degree solid-state battery pack that year, and after being rejected by CATL, chose start-up company WeLion New Energy as its partner. Li Auto, in partnership with CATL, embarked on the development of a fast-charging battery. Four years later, not only has NIO successfully mass-produced ultra-long endurance batteries in its vehicles, but it has also driven other automakers such as Xpeng and Zhiji to launch electric vehicles that support over a thousand kilometers range. Li Auto's fast-charging technology developed with CATL has also been favored by more automakers in the market, and many of the new pure electric vehicles launched now almost all include 4C fast charging as a standard feature.

Tesla has not ignored these two major trends in the development of battery technology in the Chinese market. However, a person close to Tesla in North America revealed that the company does not consider this to be the right direction, especially with respect to fast charging technology, which they do not value highly. This is because in the United States, the pace of life is relatively relaxed, and few people are willing to pay for fast charging technology. In addition, Tesla has very strict standards for its battery systems— even in high-temperature environments of 55 degrees Celsius without activating the water cooling system, the battery must not experience any thermal runaway when fully charged. Such high requirements make Tesla conservative in the development of ultra-fast charging battery products.

Continuously developing 4680 batteries, not releasing new models, and missing the trend of technology in the Chinese market—this combination of factors has led Tesla to miss numerous opportunities in the fiercely competitive electric vehicle sector.

Since April, employees have noticed that Elon Musk is rapidly refocusing on the automotive business and has initiated a series of intensive internal adjustments. He is communicating face-to-face with employees at the supervisor level, delving deep into problems and their solutions.

In the meantime, Tesla is pushing forward with AI technology and the development of its autonomous driving system—the Full Self-Driving (FSD), much like its past commitment to developing large cylindrical battery technology. Musk stated on social media, "This year, Tesla will invest around 10 billion dollars in AI training and inference, a substantial sum that will be mainly used in the automotive field."

Since Musk became CEO of Tesla in 2004, he has been known for proposing ideas that challenge conventional thinking. He is good at creating and solving problems, constantly breaking through various constraints. Clearly, Musk seems to be entering a new phase of such a cycle, further driving the company's development.