A popular misconception has emerged about Elon Musk and Tesla: The mega-billionaire’s love affair with Twitter is the main reason why Tesla shares have lost so much value this year. But Tesla̵[ads1]7;s steep stock selloff this week proved that the problems at Musk’s car company go far beyond Twitter.
Even as Musk signals he may relinquish the CEO title on Twitter, investors have worried that the outlook for Tesla’s sales and profits is taking a turn for the worse. A sign of the weakened demand: Tesla has announced a rare sale. The company offered two discounts for buyers who take delivery of a vehicle before the end of the year, initially offering a $3,750 discount earlier this month. Tesla then doubled the discount to $7,500 on Thursday.
“Tesla is clearly starting to see demand explode in China and in the US at a time when competition for EVs is increasing across the board,” said Dan Ives, technical analyst at Wedbush Securities and a Tesla bull who cut his price target on the stock on Friday. from $250 to $175. “The price cuts that Tesla adopted were the straw that broke the camel’s back on the stock.”
Another reason Tesla’s stock is falling: The US economy could tip into recession next year, hurting car sales. Musk said on a Twitter Spaces call Thursday that he predicts the economy will be in a “severe recession” by 2023.
“I think there’s going to be some macro drama that’s higher than people think at the moment,” he said, according to Reuters, adding that homes and cars would be “disproportionately affected” by economic conditions.
Part of the problem with Tesla’s share price is that critics question whether it was ever worth the trillion-dollar valuation it had 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 short term,” said Gene Munster of Loup Ventures, another Tesla fan. “I still think this can be a much bigger company. I think it will see those kinds of numbers again. But it could take a long, long time to get there.”
Tesla’s growth prospects – a target of 50% annual sales growth – helped drive this valuation. It admitted in October that it will miss that sales target for this year.
The stock’s rise to dizzying heights — up 743% in 2020 alone — was fueled by Musk’s reputation as a genius who would disrupt the vast global auto industry.
“Tesla was seen as a disruptive technology company, not as an automaker, and a large part of that premium is tied to Musk,” Ives said.
Critics of Tesla said much of the skyrocketing value was based on promises Musk made about future products, many of which arrived years after they were originally promised.
A good example is the Cybertruck, the Tesla truck, which was first unveiled three years ago with promises that production would start in 2021. Now it is planned to start production next year, with a ramp-up in production in 2024, which leave it years behind. other electric pickup offerings from Ford and new EV maker Rivian, both of which have electric pickups available for purchase today. It may also follow planned electric pickup offerings from General Motors.
“Elon Musk has a pathological problem with the truth,” said Gordon Johnson, one of Tesla’s biggest critics among analysts. “When people say he’s a genius and innovator, it’s based on all the promises he never lives up to.”
Johnson said Tesla shares will have a much steeper fall going forward as they begin to be priced like other automakers rather than on their promises. He said that for Tesla to meet its growth goals, it must build new factories almost every year, but that new factories in Germany and Texas that opened in the spring are still not operating at full capacity. And he said that the factory in China has had to scale back production due to weak sales in the market in the face of the Covid restrictions.
“Demand in the United States has collapsed,” he said. “Two months ago, your waiting time was two or three months. Now you can get one immediately. They will build more cars than they sell for the third quarter in a row. That is the definition of excess capacity.”
Tesla remains by far the largest electric car manufacturer worldwide, although that title is being challenged in some key markets, by Volkswagen in Europe and BYD in China. And more competition comes from established car manufacturers such as Ford and GM.
That’s not to say Twitter hasn’t played a role in Tesla’s share price slide this year: Tesla shares have lost 66% of their value since Musk’s interest in Twitter was first made public in April, with a 45% decline since he closed the deal at the end October.
Investors have been disappointed that Musk appears to be paying for so much of his $44 billion purchase of Twitter by selling Tesla shares. Musk, Tesla’s largest shareholder, has sold $23 billion worth of Tesla stock since his interest in Twitter became public in April.
On Thursday’s Twitter Spaces call, Musk promised he was done selling Tesla stock until at least 2024, if not longer. But he has not lived up to one in the past promises in April that he was done selling Tesla stock, selling $14.4 billion of that stock since then.
“It’s been a Pinocchio situation for Musk to say he’s done selling shares. 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 heads, along with Tesla and SpaceX. So many assumed that Musk’s loss of focus on Tesla has spooked the former fans on Wall Street.
But this week began with Musk running one Poll — on Twitter, of course — asking if he should relinquish the CEO title to his social media toy. He promised he would abide by the result, and 57.5% of those who voted said they want him gone.
That departure could take a while — Musk tweeted that he will step down “as soon as I find someone stupid enough to take the job!” And in the same tweet, he warned that while he’s giving up the Twitter CEO title, he’s not walking away entirely, saying he plans to “just run the software and server teams” after finding a new “fool” to be the managing director.
The gauge results late Sunday were enough to lift Tesla shares in early trading Monday, but the shares ended the day slightly lower, and have lost significantly more ground each day since. Tesla shares fell 9% on Thursday, and it ended the week down 18% after falling another 2% on Friday.
And then there’s the question of how much damage the Twitter debacle has done to the Tesla brand. Musk has fired thousands of employees, banned journalists while allowing Donald Trump and other previously banned accounts back online, called for the prosecution of Dr. Anthony Fauci, embraced conspiracy theories and made anti-trans statements during his short tenure as CEO.
That may have endeared him to some, but angered other potential buyers, including liberals who might be willing to pay a premium for a more eco-friendly vehicle.
“I think there was measurable damage,” said Munster, who believes the publicity over his time on Twitter cost Tesla 5% of sales.