For most of this year, as other growth stocks have collapsed, Tesla seemed to be defying gravity. Bulls have complained that electric car maker Elon Musk’s shares are suffering because of his Twitter bid. But as recently as three months ago, with the stock down just 25 percent from its November 2021 high, it was still unbelievable that it would escape the worst of the carnage.
Not anymore. December is atrocious It snapped more than 40 percent of Tesla shares, putting them two-thirds below their level in late September. Before a partial rebound early Thursday, Tesla’s stock market value plummeted to $355 billion, a staggering drop of nearly $900 billion from its peak in 2021.
It’s easy to find reasons for this sell-off at a time when growth is out of fashion on Wall Street and the auto industry faces an uncertain 2023. But Musk himself should take some of the blame. Whether out of arrogance, carelessness, or simply boredom with his day job, his personal mistakes served as a catalyst for his decline.
The first is the mismanagement of his huge public persona. Musk likes to claim that his Twitter presence has been of immeasurable value to Tesla shareholders. On the way, he had a point. It was the megaphone that helped him cement public awareness as the number one entrepreneur in the world, even if it caused unpleasant public controversies and disagreements with regulators.
But as he did Smarter chaos and polarization At Twitter in the two months following the acquisition, his personal brand — and thus Tesla’s — had been tarnished.
The second misstep was to take the company’s soaring stock for granted. Turning his attention to Twitter just as the auto industry appears to be on the brink of contraction, and as serious competition in electric cars finally begins, seems like a very poor judgment, even if it turns out to be only temporary.
Musk also seems to think he can treat his Tesla stock holdings like a piggy bank. He began Sell Two days after the stock peaked and continued to dump just under $40 billion of its shares, sales continued even after he said he would stop (a comment he repeated last week). With his current stake in Tesla now worth $51.7 billion, the disposals look like a lot.
Actions like these help explain how the stock market spell enabled Musk to turn around and undo Tesla. Wherever sentiment subsided, rational analysis stepped in to provide sufficient justification for the brutal reclassification.
For many, it would have been believable that Tesla was poised to capture the lion’s share of the giant new electric vehicle market that was about to open up. But as Musk warned on Twitter last week, high interest rates and an unstable economy signal a tough period ahead. With customer waiting lists dropping sharply in Tesla’s two largest markets, the United States and China, continuity of demand has replaced supply for the first time as the top concern for the company’s investors.
Tesla had already warned in October that inventory levels were likely to rise further in the quarter as production outpaced deliveries, and that profit margins would come under pressure again. This month it began offering $7,500 in incentives to anyone who takes delivery of a Model 3 or Model Y before the end of the year.
All of this comes as Tesla approaches the crossroads that all growth stocks eventually reach. Sustaining the rapid expansion Musk promised is starting to look difficult without actions that would dampen the profits Wall Street now expects.
Over the past two years, Tesla’s 30 percent gross margin for car operations (at least, until higher costs creep in this spring) was nearly twice that of Ford and General Motors, and comfortably higher than Toyota’s at 19 percent. Seeking to maintain margins could further erode the valuation of developing stocks that continue to underpin the company, even after a slide.
None of this detracts from the incredible success Tesla can point to as it caps another year of growth that other automakers could only dream of. But a market capitalization of more than twice Toyota and a share price of 30 times expected earnings for this year still leave room for further disappointment.