Why did Tesla and Elon Musk have a horrible year? Tesla’s market worth was significantly reduced by $680 billion. And Musk, who was once lauded as a genius who revolutionised the auto industry, appears increasingly preoccupied with his acquisition of Twitter.
Tesla’s share price decrease of 70% stands out in a year where equities have fallen due to the amount of money lost and Elon Musk’s unusual behaviour as the company’s CEO.
Tesla’s market worth was significantly reduced by $680 billion. In addition, Musk, who was once lauded as a genius who revolutionised the auto industry, now seems preoccupied with his acquisition of Twitter and is using the social media site to vent his concerns. He called one of his critics “little testicles” this week, insulting him.
The display astounded analysts and investors alike. Another frequently asked topic is what will happen to the stock, the company, and Musk in 2023. The Tesla and Musk boards of directors will play a significant role in the solution.
Will he return to Tesla and all of its issues? Or will he still be active on Twitter? Will Musk, who recently spent $44 billion to acquire Twitter, sell more Tesla shares in defiance of his promise not to? Will Tesla finally put the Cybertruck, its first all-new passenger automobile in three years, on the market? The most important question is whether Musk will be restrained by Tesla’s board in any way.
Investors have been forced to fundamentally rethink Tesla’s chances in a deteriorating economy as a result of these concerns. It is still considered to be the only large carmaker that is a growth stock, as well as the most valuable automaker. However, investors are no longer convinced that Tesla can dominate the vehicle industry the way that Apple dominates the smartphone market or that Amazon dominates online shopping.
These worries have compelled investors to fundamentally reevaluate Tesla’s prospects in a faltering economy. It is still regarded as the most valuable manufacturer and the only major automaker that is a growth stock. Investors, however, are no longer sure that Tesla can rule the auto sector in the same way that Apple rules the smartphone market or that Amazon rules e-commerce.
According to Efraim Benmelech, a finance professor at Northwestern University’s Kellogg School of Management, “the promise of Tesla was also that at some point, all of the cars in the current world would be electric vehicles, and also Tesla would play a major role in that.”
He continued, however, that investors had since changed their minds and now appeared to believe that conventional automakers like Ford and General Motors would be able to effectively compete against Tesla.
Benmelech, who mainly uses Tesla as a case study in his classes, stated that some of those main companies had been around for 100 years. “They have competent management and engineers. Competition plays an important role that shouldn’t be undervalued.
Benmelech notes that Tesla is doing well by most conventional standards. The business has some of the highest profit margins in the industry and has reduced its debt. In the very first nine months of 2022, it revealed a net profit greater than General Motors’ $8.9 billion.
There were indications that the share price was stabilising this week. The shares increased from a two-year low of $109 on Wednesday to $122 on Friday.
Tesla must live up to higher expectations than more seasoned automakers because many investors compare it to technology firms. Because of this, it still has a value of about $380 billion, as opposed to about $220 billion for Toyota.
Analysts claim that it is now obvious that Tesla’s $1 trillion stock market valuation at the beginning of the year was exaggerated. Investors who bought shares in the company in 2017 when it was worth $40 billion are likely to blame for some of the spectacular increase in Tesla’s share price in 2020 and 2021. They were probably hoping that the company would make them as wealthy as it had other investors (and considered by some sceptics at the time to be wildly expensive).
“There were periods when Tesla appeared like it could make someone a fortune in short order,” said William Goetzmann, a professor of finance at the Yale School of Management and an authority on asset values.
Keeping that hope was harder to do in 2022 when a number of problems emerged. Due to temporary shutdowns at its Shanghai facility brought on by a spike in COVID cases as well as tough competition from BYD and other Chinese automakers, Tesla’s chances of controlling the world’s largest auto and electric car market in China are in doubt. Shanghai is home to Tesla’s largest facility, which accounts for 40% of its total output.
Tesla is expected to release its fourth-quarter and full-year auto sales numbers in the upcoming days. The business will deliver 420,000 cars in the final three months of the year, up from the third quarter’s 343,000 deliveries, according to Wall Street analysts. Even if it’s amazing, that wouldn’t be enough for the company to meet its goal of boosting revenue by 50% for the entire year.
Rising borrowing rates were a concern for all automakers, but especially for businesses like Tesla, whose primary vehicles often sell for more than $50,000. Due to increased rates, many customers cannot afford higher monthly payments.
Analysts criticised Musk for failing to concentrate adequately on Tesla at a critical time, despite the fact that he had little control over rate rises by the Federal Reserve and other central banks.
Wedbush Securities analyst Daniel Ives lists ten things Musk might do to increase Tesla’s stock price. Ives has always been optimistic about the company’s future. Ives’ list of recommendations likely encapsulated the thoughts of many investors. The top two items on the list are “name a new CEO for Twitter” and “focus emphasis back on Tesla, not on Twitter.”
Analysts and investors can’t agree on how much Tesla’s reputation has suffered as a result of Musk’s tweets among the left-leaning consumers most likely to buy an electric vehicle. Even setting aside those concerns, Musk’s actions have highlighted Tesla’s dearth of internal checks and balances. Kimbal Musk, a director on the company’s board of directors who has generally remained silent, is the CEO’s brother.
Several directors stated last month that they were unconcerned about how much time Elon Musk was spending at Twitter during their testimony in a lawsuit challenging the executive’s massive compensation package in a Delaware court. Tesla’s chair, Robyn Denholm, testified that Tesla would “do whatever it takes to get the results.”
Tesla’s board, according to Len Sherman, an adjunct professor at Columbia Business School and former consultant to the auto sector, has been excessively submissive to Elon Musk.
Sherman remarked, “You have no effective governance to restrain his worst impulses.” “No one can stop him from running his show the way he wants to,” someone said.
Sherman, a Tesla owner who once owned Tesla stock, is one of those who have started to wonder if Musk is the best person to lead the business as it matures into a major automaker. He observed that there had been no recent mention of initiatives to create a $25,000 car that would draw more buyers and boost sales.
This is not how Tesla will develop to become the next GM or Volkswagen, according to Sherman. “He’s not the appropriate candidate to be the kind of leader Tesla needs going ahead,” the author writes, “despite all of his excellent traits and the fact that he was the only human on the planet to achieve what he did.”
As its visionary CEO looks to be disengaged, Tesla is being judged more in accordance with more conventional measures like sales and profits and less in line with dreams of global supremacy.
The fact that cars are so prevalent today, according to Yale’s Goetzmann, forced a change in the industry’s foundation at some time in its history from being based on long-term prospects to being based on sales figures and other similar factors.