A popular misconception has arisen about Elon Musk and Tesla: that the mega-billionaire’s love affair with Twitter is the main reason the automaker’s stock has lost so much value this year.
But Tesla’s strong sell-off this week proved that the problems at Musk’s automaker go far beyond Twitter.
Even with the entrepreneur signaling that he may step down as CEO at Twitter, investors have been concerned that the outlook for Tesla’s sales and profits is worsening.
One sign of weakening demand was the announcement of a promotion by the car company. The company offered two discounts for buyers who choose to receive a vehicle before the end of the year.
Earlier this month, a $3,750 (R$19,373) discount was offered. The discounted amount then doubled to $7,500 (R$38,746) on Thursday (22).
“Tesla is clearly starting to see demand drop in China and the US at a time when competition is increasing across all industries,” said Dan Ives, technology analyst at Wedbush Securities.
Another reason Tesla shares are plunging: The US economy could slip into a recession next year, hurting car sales.
Musk said in a Twitter Spaces call on Thursday that he predicts the economy will be in a “serious recession” by 2023.
“I think there will be some ‘macro’ drama that is bigger than what people currently think,” he said, according to Reuters, adding that homes and cars will be “disproportionately impacted” by economic conditions.
Questionable valuation of Tesla’s value
Part of the problem with the company’s stock 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 one of them. Today it is worth $399 billion. (BRL 2.061 trillion).
“She outdid herself in the short term,” said Gene Munster of Loup Ventures, another Tesla fan. “I still believe this could be a much bigger company. I think he will see these types of numbers again. But it could take a long, long time to get there.”
The growth prospects – targeting sales growth of 50% per year – helped drive this assessment. The company admitted in October that it will not reach the sales target for this year.
The stock’s skyrocketing rise — rising 743% in 2020 alone — was fueled by Musk’s reputation as a genius who would revolutionize the massive global auto industry.
“Tesla was seen as a disruptive technology company, not an automaker, and a large part of that award is related to Musk,” said Ives.
Over-promise, under-deliver
Tesla’s critics said much of its sky-high valuation was based on promises Musk made about future products, many of which came years later than originally scheduled.
A prime example is the Cybertruck, Tesla’s pickup truck, first launched three years ago with promises that production would begin in 2021.
Production is now slated to begin next year, with an increase in 2024, putting it years behind other electric pickup truck offerings from Ford and Rivian, both of which have vehicles of the type available for purchase today.
You can also follow General Motors’ (GM) planned offerings of electric pickup trucks.
“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 an innovator, it’s based on all his promises that he never keeps,” he added.
Johnson said the company’s stock will take a much steeper plunge ahead once it begins to be priced like other automakers rather than its promises.
He pointed out that for Tesla to meet its growth targets, it needs to build new factories almost every year, but that the new plants in Germany and Texas that opened in the spring are not yet operating at full capacity.
In addition, according to the expert, the factory in China had to reduce production due to weak sales in the market in the face of Covid-19 restrictions.
“Demand in the US has collapsed. Two months ago, the waiting time was two or three months. Now you can get a [carro] immediately. They will build more cars than they sell for the third straight quarter. It is the definition of excess capacity,” she explained.
Tesla is still by far the world’s biggest electric vehicle maker, 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.
twitter factor
That’s not to say Twitter hasn’t been instrumental in Tesla’s stock price slump this year: they’ve lost 66% of their value since Musk’s interest in the network was first publicized in April, with a drop 45% since he closed the deal at the end of October.
Investors were disappointed that the businessman appeared to be paying for much of his $44 billion purchase of Twitter by selling Tesla shares.
Musk, Tesla’s biggest shareholder, has sold $23 billion worth of shares in the automaker since his interest in Twitter became public.
On Thursday’s Twitter Spaces call, he promised he wouldn’t sell Tesla stock until at least 2024, if not beyond.
But he has defaulted on an earlier promise, made in April, that he had stopped selling shares in the company, selling $14.4 billion of assets since then.
“It’s been a Pinocchio situation for Musk saying he stopped selling stocks. Investors want to see you act and not just talk the talk,” warned Ives.
In addition, the entrepreneur named himself CEO of Twitter, the third largest company he leads, along with Tesla and SpaceX. So many people assumed that Musk’s loss of focus on Tesla scared off his old fans on Wall Street.
But this week began with Elon Musk taking a poll – on Twitter, of course – asking whether he should give up the title of CEO of his social network. He promised that he would accept the result, and 57.5% of those who voted were for him to leave.
Even if this comes to fruition, this exit may take a while, as the businessman made a publication saying that he will resign “as soon as he finds someone foolish enough to accept the position!”.
In the same tweet, he warned that even if he gives up the CEO title on Twitter, he won’t quit entirely, saying he plans to “only run the software and server teams.”
The survey results were enough to send Tesla shares higher in early trading on Monday, but the stock ended the day slightly lower and has lost significantly more ground every day since.
Tesla shares fell 9% on Thursday and ended the week down 18% after another 2% drop on Friday.
And then there’s the question of how much damage the Twitter debacle did to the Tesla brand.
Musk laid off thousands of employees, banned journalists while allowing Donald Trump and other previously banned accounts back online, Dr. Anthony Fauci has embraced conspiracy theories and made anti-trans statements in his perhaps short tenure as CEO.
It might have pleased some, but it angered other potential buyers, including liberals who might be willing to pay a premium for a greener vehicle.
“I think it was measurable damage,” mused Munster, who believes advertising during his time on Twitter cost Tesla 5% of its sales.
Source: CNN Brasil
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