Musk breaks the spell he had woven around Tesla

For much of this year, while other growth stocks have fallen, Tesla has seemed to defy gravity. Bulls complained that shares in Elon Musk’s electric power company suffered because of his bid for Twitter. But recently in the last three months, with the stock down only 25 percent from its peak of November 2021, it was still possible to believe that it will escape from the worst of the massacre.

No more. The terrible December has cut more than 40 percent from Tesla shares, leaving them two-thirds below their level at the end of September. Before a partial recovery early Thursday, Tesla’s market value fell to $355bn, a sharp drop of nearly $900bn from its 2021 peak.

It is easy to find reasons for this sale at a time of unusual growth on Wall Street and the car industry is facing uncertainty 2023. But Musk himself is to blame. Whether it’s procrastination, carelessness or simply giving up on his day’s work, his own mistakes become obstacles for mitigation.

One is not managing his own public. Musk likes to say that his Twitter presence is invaluable to Tesla shareholders. On the way up, he had an idea. A megaphone helped cement him in the public eye as one of the world’s most important businessmen, even as he expressed displeasure with the public and ran afoul of the authorities.

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But since he caused chaos and polarization on Twitter two months after its use, his own brand – and, by extension, that of Tesla – has been damaged.

The second step is to take the company’s high-end sales seriously. Turning his attention to Twitter at a time when the auto industry seems to be on the brink of a recession, and the serious competition in electric cars is finally starting to mount, it seems very bad. court, even if only temporarily.

Musk also apparently believed he could treat his Tesla products like a box office. He started selling two days after the sale and has gone on to liquidate just under $40bn worth of his shares, continuing to sell even after he said he would stop. (a statement he repeated last week). With his current stake in Tesla worth $51.7bn, the move seems significant.

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Actions like these help explain how the stock market that Musk was able to spin around himself and Tesla went broke. And where sentiment recedes, rational analysis steps in to provide more evidence for a negative reevaluation.

For many, it is possible to believe that Tesla is on the verge of capturing the lion’s share of a new electric market that will open. But as Musk warned on Twitter last week, high interest rates and economic uncertainty point to a difficult period ahead. With customer waiting lists falling sharply in Tesla’s two biggest markets, the US and China, steady demand has turned supply for the first time into and the biggest concern for the company’s investors.

Tesla has already warned in October that it will increase the level of products this quarter because the production is more than the deliveries, and that the profits will be under pressure again. This month it began offering $7,500 in incentives for anyone who takes delivery of a Model 3 or Model Y before the end of the year.

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All of this comes as Tesla approaches the highway where all product growth takes place. Sustaining the rapid expansion that Musk has promised is beginning to look challenging without taking action to eat up the profits that Wall Street now expects.

In the past two years, the 30 percent profit on Tesla’s cars (at least, until the price peak this spring) was twice the interest of Ford and General Motors, and more than Toyota’s 19 percent. Seeking to maintain earnings can eat into the rising stock prices that still support the company, even after the slide.

None of this detracts from the great success that Tesla can point to to end another year of growth that other automakers can only dream of. But Toyota’s market value doubles and its share price at 30 times expected earnings this year still leaves room for more disappointment.

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