A popular misconception has emerged about Elon Musk and Tesla: The mega billionaire’s love affair with Twitter is the main reason Tesla shares have lost so much value this year. But Tesla’s hard stock sale this week has proven that the problems at Musk’s auto company go far beyond Twitter.
Even as Musk signaled on Twitter that he might relinquish his CEO title, investors began to worry that the outlook for Tesla’s sales and profits was deteriorating. A sign of waning demand: Tesla announced a rare sale. The company offered two discounts for buyers who received a vehicle before the end of the year, and initially offered a $3,750 discount earlier this month. Tesla later doubled that discount to $7,500 on Thursday.
“Tesla is clearly starting to see demand cracks at a time when EV competition in China and the US is generally increasing,” said Dan Ives, tech analyst at Wedbush Securities and a Tesla bull who lowered the price target for the share on Friday. From $250 to $175. “The price cuts Tesla enacted were the straw that broke the camel’s back on the stock.”
Another reason why Tesla’s shares fell: The US economy could be enter a recession next year, it hurts car sales. Musk said in a Twitter Spaces search on Thursday that he predicts the economy will be in a “severe recession” in 2023.
“I think there will be higher macro drama than people think right now,” he said, adding that homes and cars would be “disproportionately affected” by economic conditions, according to Reuters.
Part of the problem with Tesla’s stock price is that critics question whether it’s worth it. trillion dollar valuation It was there at the beginning of the year. At its peak, Tesla was worth more than the 12 largest automakers on the planet combined, despite owning a fraction of anyone’s sales. Today it’s worth $399 billion.
“He’s outdone himself in the near term,” said Gene Munster of Loup Ventures, another Tesla fan. “I still believe it could be a much bigger company. I think it will see these kinds of numbers again. But it may take a very long time to get there.”
Tesla’s growth prospects – a target of 50% annual sales growth have helped boost this valuation. He agreed to do it in October. miss that sales target for this year.
The stock has soared to dizzying heights, up 743% in 2020 alone, due to Musk’s reputation as a genius to turn the massive global auto industry upside down.
“Tesla was seen as a disruptive tech company, not an automaker, and a large part of that premium is about Musk,” Ives said.
Critics of Tesla said that much of its very high valuation was based on promises Musk made about future products, many of which came years after they were originally promised.
The best example is the Tesla pickup truck Cybertruck. first announced three years ago, with promises that production would begin in 2021. It’s now scheduled to start production next year with an increase in production in 2024, putting it years behind other electric pickup offerings. ford and start-up EV manufacturer Riva, both have electric pickups available for purchase today. It could also follow planned electric pickup offers from General Motors.
“Elon Musk has a pathological problem with reality,” said Gordon Johnson, one of Tesla’s biggest critics among analysts. “When people say he’s a genius and an innovator, it’s based on all of his promises that he never kept.”
Johnson said that Tesla shares will fall much harder when they start pricing like other automakers instead of promises. He said Tesla needs to build new facilities almost every year to meet its growth targets, but new factories opened in the spring in Germany and Texas are still not operating at full capacity. And he said his factory in China had to cut production due to weak market sales in the face of Covid restrictions.
“Demand collapsed in the US,” he said. “Two months ago your wait was two or three months. Now you can get one right away. They’re going to produce more cars than they sold in the third quarter in a row. That’s the definition of overcapacity.”
Tesla is still by far the largest EV manufacturer worldwide, although it has challenged that title in some key markets such as Volkswagen in Europe and BYD in China. And more competition is coming from established automakers like Ford and GM.
That doesn’t mean Twitter played no part in Tesla’s stock price drop this year: Tesla shares have lost 66% of their value since Musk’s stock fell. interest in twitter first announced in April, down 45% since then closed to deal At the end of October.
Investors were disappointed that Musk paid for most of the $44 billion he bought Twitter by selling his Tesla stock. Musk, Tesla’s largest shareholder, has Sold $23 billion worth of Tesla stock His interest in Twitter has been around since it went public in April.
In a Twitter Spaces call on Thursday, Musk promised to end the sale of Tesla shares by at least 2024, or even later. But it didn’t live up to the previous one promise in april He said he finished selling Tesla shares and has since sold $14.4 billion of that stock.
“For Musk, saying he’s finished selling the stock has been a Pinocchio situation. Investors want to see him walk, not just talk,” Ives said.
Another Twitter factor: Musk became CEO of Twitter, the third largest company he led, along with Tesla and SpaceX. Because of this, many assumed that Musk’s focus on Tesla spooked his old Wall Street fans.
But this week, Musk has a questionnaire – on Twitter of course – asking if he should give up the title of CEO in the social media toy. He promised to abide by the outcome, and 57.5 percent of those who voted said they wanted him gone.
This breakup could take some time – Musk tweeted will resign “As soon as you find someone stupid enough to take the job!” And the same tweet warned that even if he relinquishes his CEO title on Twitter, he’s not going to walk away altogether, saying he plans to “manage only the software and server teams” after finding a new “dumb” to become CEO.
Survey results late Sunday were enough to boost Tesla shares in early Monday trading, but shares closed slightly lower for the day and have lost significantly more each day since. Tesla shares fell 9% on Thursday and ended the week down 18% after falling 2% on Friday.
And then there’s the question of how much damage the Twitter crash has done to the Tesla brand. Musk lays off thousands of employees, bans journalists while giving leave Donald Trump and other previously banned accounts called back online prosecution Dr. Anthony Fauciembraced conspiracy theories and made anti-trans statements during his short tenure as CEO.
It may have endeared it to some, but angered other potential buyers, including liberals who might be willing to pay a premium for a more environmentally friendly vehicle.
“I think it was measurable damage,” said Munster, who believed that during his time on Twitter the promotion cost Tesla 5% of its sales.
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