Musk Rules Out Model Y Refresh in 2024 Even as Tesla’s Sales Sag

Tesla CEO Elon Musk has ruled out a refresh of its Model Y in 2024 in a post on X. The Model Y is the best-selling model in Tesla’s portfolio and during the company’s Q4 earnings call, it said it delivered 1.2 million of these in 2023.

For context, Tesla delivered only about 1.8 million cars in aggregate last year. To further gauge the popularity of Model Y, consider the fact that it was the best-selling model last year across electric cars as well as internal combustion engine (ICE) cars. It was the first time in history that an electric car was the best-selling model.

Tesla Is Battling Slowing Sales

Tesla is battling a slowdown in its sales and in Q1 2024 its deliveries fell 8% YoY. It was the first quarter since 2020 when the Elon Musk-run company reported a yearly fall in deliveries. Notably, Tesla has boasted of being a supply-constrained company for years now. It could sell all the cars that it could produce amid the strong demand.

However, the industry dynamics have changed over the last few quarters. Firstly, the EV demand growth has slowed down as the early adopters have fizzled away and the EV industry is now struggling to increase the adoption beyond them.

Secondly, Tesla has ramped up its capacity which has increased its nameplate production capacity. To make things worse, there is heightened competition in the EV industry after a flurry of new launches.

In its Q1 shareholder deck, Tesla reiterated that the “volume growth rate may be notably lower than the growth rate achieved in 2023. In response to an analyst question on whether its sales growth could be negative in 2024, Musk responded by saying No, I think we’ll have higher sales this year than last year.” The comments looked promising after the steep fall in the company’s Q1 deliveries.

Tesla is Working on a Low-Cost Model

During the Q1 earnings call, Tesla also provided an update on its low-cost model and said these “will be made on our current production lines much more efficiently.” Musk said that Tesla should launch the model early next year if not later this year.

The model would especially help Tesla in China where rival BYD has raced ahead with its budget models. Musk has praised Chinese EV companies several times in the past and they have given Tesla a tough competition.

Elon Musk’s Pay Package

Meanwhile, the near-term challenge for Tesla is to get Musk’s 2018 compensation package approved for shareholders.

Tesla has reached out to shareholders to reapprove Musk’s 2018 pay package which was voided by a Delaware judge earlier this year. However, proxy firms like Institutional Shareholder Services (ISS) and Glass Lewis have advised investors to reject the mammoth package.

In its report, proxy firm Institutional Shareholder Services (ISS) termed Musk’s pay package as “outsized from the start.” ISS said that the package “failed to accomplish certain of the board’s stated objectives” including requiring that Musk “more closely on the Tesla organization, as opposed to his other businesses.”

According to ISS, “Some investors may find the board’s argument compelling, that it would be unfair for CEO Musk not to receive the award.” It added, “However, the concerns raised, both back in 2018 and in the interim, have not been sufficiently mitigated.”

Controversy Over Musk’s Package

Musk’s compensation package was once as much as $56 billion which made it the biggest pay package in history.

While some investors see Musk’s package as too high, there are some who believe it was a well-deserved compensation for him.

In his letter, Tesla shareholder and billionaire investor Ron Baron argued that Tesla shareholders also benefited as the company hit those “aggressive performance metrics that few in 2018 believed could be achieved.”

He added, “Tesla’s market cap when Elon’s pay package was approved on March 21, 2018 was $53.5 billion. It is approximately $550.75 billion today, after having reached a high watermark of $1.24 trillion in November of 2021. He performed under his compensation contract. He earned his pay.”

Notably, Musk does not receive any fixed pay, incentive, or bonus from Tesla and all his compensation is tied to stock options which are contingent upon the company hitting several milestones like profitability and market cap.

Meanwhile, Tesla’s market cap is now less than half of its 2021 peak amid slowing growth. With the company now ruling out a Model Y refresh in 2024, it might need to pull out other growth drivers to spur sales which might not be easy considering the product mix where Model Y accounts for the bulk of its sales.