👉 Background: Tesla has was the OG electric vehicle company, founded in 2003. While Elon Musk wasn't an original founder, a court settlement allowed him to technically call himself a ‘founder’. But founder or not, Elon Musk has propelled Tesla to enormous heights, making Tesla more valuable than the 35 next-biggest car makers.

‍👉 What happened: Now, Tesla has warned that its fourth-quarter results were well below expectations. In fact, its revenue of $25.7 billion USD was nearly $2 billion below what Wall Street expected. Chuck on top of that, its gross profit margin dropped more to 16.3% - which is more than 2% below expectations.

‍👉 What else: The reason for the profit margin drop? Tesla's sales has been slowing down so it has been discounting its cars. But rather than continue discounting its existing models, Tesla announced plans for a new, cheaper model in the first half of 2025.

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‍What's the key learning?

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‍💡As industries mature, prices fall, margins shrink, and only the strongest survive. In the early stages of an industry, companies can charge premium prices because there are fewer competitors and high demand for innovation.

💡In the early days of electric vehicles, Tesla's cars were selling for more than $200,000 in Australia. On top of this, Tesla’s gross profit margin was nearly 33% in the early 2010's.

💡But as more competitors enter the space, pricing pressure builds. And that meant EV companies, like Tesla, are forced to differentiate or compete on price. As a result, Tesla’s gross profit margin has more than halved to 16.3%.