Elon Musk and Tesla have become the subject of a common misunderstanding, according to which the billionaire’s obsession with Twitter is the primary cause of the stock’s steep decline this year. Tesla’s sharp stock decline this week demonstrated that the issues at Musk’s automaker reach far beyond Twitter.
Investors are anxious that the prognosis for Tesla’s sales and earnings is worsening even as Musk hints he may resign as CEO of Twitter. The fact that Tesla has announced a rare deal is a symptom of waning demand. The company initially provided a $3,750 discount earlier this month and then offered two rebates for customers who took delivery of a vehicle before the end of the year. Later, on Thursday, Tesla quadrupled that incentive to $7,500.
Dan Ives, a tech analyst at Wedbush Securities and a Tesla bull, dropped his price objective for the stock on Friday from $250 to $175. He said that Tesla “clearly is starting to see demand cracks in China and the US when EV competition is expanding across the board.” According to one analyst, Tesla’s pricing decreases precipitated the stock’s decline.
The US economy may slip into a recession next year, which would harm auto sales and contribute to the decline in Tesla’s price. Musk predicted a “severe recession” in the economy in 2023 during a Twitter Spaces chat on Thursday.
According to Reuters, he stated, “I think there is going to be some macro drama that’s larger than people now anticipate,” adding that homes and vehicles will be “disproportionately impacted” by economic circumstances.
Tesla’s questionable valuation
Critics’ doubts about whether Tesla was ever worth its trillion-dollar valuation at the beginning of the year contributed to the stock price’s issues. Tesla had a fraction of their total sales at their height yet was still valued more than the top 12 automakers on the planet. It is currently appreciated at $399 billion.
Another supporter of Tesla, Gene Munster of Loup Ventures, stated that it “got ahead of itself in the near term.” “I still think this company has a lot more potential. I believe it will experience numbers of that nature again. But getting there can take a very, very long time.
Tesla’s growth ambitions, including an annual sales objective of 50%, contributed to that price. It acknowledged in October that it would fall short of its yearly sales goal.
The stock’s ascent to incredible heights—rising 743% in just 2020—was fueled by Musk’s reputation as a brilliant disruptor of the enormous global auto industry.
Ives stated that a significant portion of the premium Tesla received was due to Musk. “Tesla was perceived as a disruptive technology business, not as an automotive,” she added.
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Overpromising and underdelivering
Tesla’s detractors said that a significant portion of its exorbitant valuation was predicated on promises made by Musk regarding upcoming products, many of which materialized years after they were first anticipated.
The Cybertruck, a Tesla pickup truck that was first revealed three years ago with the promise that production would begin in 2021, is a good example. It will now start production in 2019, with a ramp-up in production beginning in 2024, lagging years behind competing electric truck models from Ford and upstart EV manufacturer Rivian, both of which are now on the market. It might also fall behind General Motors’ anticipated electric pickup models.
One of the most vocal Tesla detractors among experts, Gordon Johnson, claimed that Elon Musk “has a pathological problem with the truth.” “People’s claims that he is a genius and inventor are based on all the promises he consistently breaks.”
Once Tesla starts to be valued similarly to other automakers rather than on its promises, Johnson predicted that the share price would experience a considerably greater decline. He claimed that while new factories in Germany and Texas that debuted in the spring are still not functioning at total capacity, Tesla must build new plants virtually every year to meet its growth ambitions. And he added that despite the Covid limits, sales on the market were dismal, forcing the company’s plant in China to reduce production.
He declared, “Demand in the US has dropped.” “Your wait time used to be two or three months two months ago. You can now obtain one right away. For a third consecutive quarter, they will produce more automobiles than they sell. It embodies the concept of surplus capacity.
Despite competition from Volkswagen in Europe and BYD in China in certain important countries, Tesla remains the largest EV manufacturer globally. Also adding to the fight are well-known automakers like Ford and GM.
However, Tesla shares have lost 66% of their value since Musk’s interest in Twitter was first revealed in April, with a further 45% loss since the purchase was finalized in late October. This is not to suggest that Twitter had no part in Tesla’s stock price decline this year.
Investors are irritated that Musk looks to be using the sale of Tesla stock to cover a large portion of his $44 billion acquisition of Twitter. Since his interest in Twitter was made public in April, Musk, Tesla’s largest shareholder, has sold shares worth $23 billion.
Musk stated on Thursday’s Twitter Spaces call that he would not sell any further Tesla stock until at least 2024, if not later. However, despite stating in April that he was finished selling Tesla shares, he has since sold $14.4 billion worth of that stock.
“Musk’s declaration that he is finished selling stock has been a Pinocchio situation. Ives says investors want to see him act, not just speak the talk.
In addition, Musk designated himself CEO of Twitter, the third significant business he oversees after Tesla and SpaceX. Thus, many believed that Musk’s shift in attention away from Tesla had alarmed its previous supporters on Wall Street.
However, Musk started this week by conducting a poll on Twitter, of course, asking if he should resign as CEO of his social media side project. 57.5% of voters declared they wanted him to be removed, and he pledged to follow the decision.
Musk stated he would leave “as soon as I find someone stupid enough to take the job,” so that departure might take some time. In the same tweet, he also issued a warning, stating that even if he relinquishes his position as CEO of Twitter, he won’t be leaving the company entirely and instead intends to “simply run the software & servers teams” after appointing a new “dumb” as CEO.
The poll results from late Sunday were sufficient to increase Tesla shares in early trade on Monday, but the stock closed the day marginally lower and has subsequently fallen considerably. Following a further 2% decline on Friday, Tesla shares finished the week down 18% after losing 9% on Thursday.
Wall Street downgrades Tesla due to Elon Musk’s behavior on Twitter and his decision to prohibit journalists.
Then there’s the issue of how much harm the Twitter scandal has done to Tesla’s reputation. During his brief time as CEO, Musk has fired thousands of workers, banned journalists while re-enabling Donald Trump and other previously blacklisted accounts, advocated for the prosecution of Dr. Anthony Fauci, supported conspiracy theories, and made anti-trans remarks.
While it may have won him some admirers, it infuriated other prospective customers, mainly liberals, who might be ready to spend extra for a more environmentally friendly car.
Munster, who thinks the publicity surrounding his tenure at Twitter cost Tesla 5% of its sales, said” “I think that was meaningful damage.”
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Jessa Martin is the author of Nogmagazine, A professional in writing by day, and novelist by night, she received her bachelor of arts in film from Howard University and her master of arts in media studies from the New School. A Brooklyn native, she is a lover of naps, cookie dough, and beaches, currently residing in the borough she loves, most likely multitasking.