A popular misconception about Elon Musk and Tesla has come to light: The megabillionaire’s love affair with Twitter is the main reason Tesla shares have declined so much this year. But Tesla’s massive stock selloff this week proved that the problems at Musk’s car company extend far beyond Twitter.
Even as Musk indicated he may leave his CEO position on Twitter, investors grew concerned that the outlook for Tesla’s sales and profit was getting worse. A sign of weak demand: Tesla has announced a rare sale. The company offered two discounts for buyers who take delivery of the vehicle before the end of the year, initially offering a discount of $3,750 earlier this month. Tesla doubled that rebate on Thursday to $7,500.
“Tesla is clearly seeing declining demand in China and the US at a time when EV competition is rising across the board,” said Dan Ives, tech analyst at Wedbush Securities. From $250 to $175. “Tesla’s price cut was the straw that broke the camel’s back on the stock.”
Another reason Tesla’s stock is plunging: The US economy may be in recession next year, which will affect car sales. Musk said on a Twitter space call on Thursday that he expects the economy to be in a “severe recession” in 2023.
“I think there is going to be some macro drama that is greater than people are currently thinking,” he said, according to Reuters, adding that homes and cars would get “disproportionately affected” by economic conditions.
Part of the problem with Tesla’s share price is that critics question whether it was worth its trillion-dollar valuation at the start of the year. At its peak, Tesla was worth more than the 12 largest automakers on the planet combined, despite having a fraction of the sales of any of them. Today it is worth $399 billion.
“It got ahead of itself in the near term,” said Gene Munster of Loop Ventures, another Tesla fan. “I still believe this can be a huge company. I think it will see those kinds of numbers again. But it could take a long time to get there.”
Tesla’s growth prospects — aiming for 50% sales growth annually — help drive that valuation. It admitted in October that it would miss this year’s sales target.
The stock’s ascent to dazzling heights — a 743% gain in 2020 alone — was driven by Musk’s reputation as a genius who would massively disrupt the global auto industry.
Ives said, “Tesla was seen as a disruptive technology company, not an automaker, and a big part of that premium belongs to Musk.”
Tesla’s critics said too much of its valuation was based on promises Musk made about future products, many of which came years after they were originally promised.
A prime example is the Cybertruck, the Tesla pickup truck first unveiled three years ago, with the promise that production would begin in 2021. Other electric pickup offerings from Ford and upstart EV maker Rivian, both of which have electric pickups available for purchase today. It could also explore planned electric pickup offerings from General Motors.
One of Tesla’s biggest critics among analysts, Gordon Johnson, said “Elon Musk has a pathological problem with the truth.” “When people say he is a genius and an innovator, it is based on all of his promises that he never fulfills.”
Johnson said Tesla’s shares will take a very sharp fall ahead, once it starts to price like other automakers instead of on its promises. He said Tesla needs to build new plants almost every year to meet its growth targets, but new factories opening in spring in Germany and Texas are still not operating at full capacity. And it added that its plant in China had to reduce production due to weak sales in the market due to Covid restrictions.
“Demand in America has fallen,” he said. “Two months ago, your waiting time was two or three months. Now you can get one right away. They’re going to make more cars than they sell for the third quarter in a row. That’s the definition of excess capacity.
Tesla is still the largest EV maker worldwide, although that title is being challenged in some key markets by Volkswagen in Europe and BYD in China. And more competition is coming from established automakers like Ford and GM.
That’s not to say Twitter hasn’t played a role in Tesla’s share price decline this year: Tesla shares have lost 66% of their value since Musk’s interest in Twitter first came to light in April, 45 % fall since he closed on the deal late. october.
Investors have been dismayed that Musk is paying for his $44 billion Twitter purchase by selling Tesla stock. Musk, Tesla’s largest shareholder, He has sold $23 billion worth of Tesla shares since his interest in Twitter went public in April.
On Thursday’s Twitter space call, Musk promised that he was selling shares of Tesla stock through at least 2024, if not beyond. but he doesn’t live to last promise in april That he ended up selling Tesla shares, selling $14.4 billion of that stock since then.
“It is a Pinocchio situation for Musk to say that he has ended up selling stock. Investors want to see him walk the walk and not just talk the talk,” Ives said.
Another Twitter factor: Musk named himself CEO of Twitter, the third major company he leads along with Tesla and SpaceX. Therefore, many assumed that Musk’s lack of focus on Tesla has rattled his former admirers on Wall Street.
But this week started with Musk walking vote Asking whether he should give up the CEO title on his social media playthings – on Twitter of course. He promised he would follow up on the result, and 57.5% of those polled said they wanted him gone.
That departure may take some time – Musk tweeted that he would resign “as soon as I find some fool who can take the job!” And in the same tweet he cautioned that even if he steps down as CEO at Twitter, he’s not going away entirely, saying he’ll be “just software and software” after finding a new “fool” to be CEO. Server Teams are planning to run”.
The poll results late Sunday were enough to lift Tesla shares in early trading Monday, but shares ended the day slightly lower, and have declined significantly more every day since then. Tesla shares fell 9% on Thursday, and are down 18% this week after falling 2% on Friday.
And then there’s the question of how much the Twitter debacle has damaged the Tesla brand. Musk has fired thousands of employees, banned reporters while allowing Donald Trump and other previously banned accounts back online, Dr. Anthony Fauci, adopted conspiracy theories and made anti-trans statements in his short tenure as CEO.
This may have endeared him to some other potential buyers, including liberals, who may be willing to pay a premium for a more environmentally friendly vehicle.
“I think it was a measurable loss,” said Munster, who believes the promotion cost Tesla 5% of sales during his time on Twitter.