Tesla had a bad year. Some investors accuse Elon Musk.


In a year of decline for stocks, Tesla’s 70% share price plunge stands out for the scale of the wealth vaporized and the unorthodox behavior of its chief executive, Elon Musk.

Tesla’s stock price crash destroyed about $680 billion in market value. And Mr. Musk, once hailed as a genius who remade the auto industry, seems increasingly distracted by his acquisition of Twitter and is using the social network to vent his frustrations. He insulted one of his critics this week by describing him as having “tiny testicles”.

The spectacle stunned investors and analysts. And many are wondering what will happen to the stock, the company, and Mr. Musk in 2023. The answer largely depends on Mr. Musk’s and Tesla’s board of directors.

Will he turn his attention back to Tesla and his myriad challenges? Or will he stay camped on Twitter? Will Mr. Musk sell more Tesla shares to keep Twitter going after spending $44 billion to buy the company, despite promising not to? Cybertruck, Tesla’s first new passenger vehicle in three years, will it finally be available for sale? And, perhaps most importantly, will Tesla’s board do anything to rein in Mr. Musk?

In a deteriorating economy, these uncertainties have forced investors to fundamentally reassess Tesla’s outlook. It remains the most valuable automaker and the only major automaker considered a growth stock. But investors are no longer convinced that Tesla can dominate the auto industry the way Apple dominates smartphones or Amazon rules online retail.

“Tesla’s promise was that at some point all the cars in the world would be electric vehicles, and Tesla would play a major role in that,” said Efraim Benmelech, professor of finance at the Kellogg School of Management in Northwestern University. .

But, he added, investors have since reassessed that view and now seem to think traditional automakers like Ford and General Motors will be able to pose a credible competitive challenge to Tesla.

“Some of these companies have been around for 100 years,” said Benmelech, who uses Tesla as a case study in his classes. “They have good engineers, good management. The role of competition should not be underestimated.

Mr. Benmelech points out that, by most standard measures, Tesla is doing quite well. The company has reduced debt and boasts some of the highest profit margins in the industry. It reported net income of $8.9 billion in the first nine months of 2022, more than General Motors earned.

This week, there were signs that the stock price was stabilizing. Shares rose to $122 on Friday from a two-year low of $109 on Wednesday.

Because many investors compare Tesla to tech companies, it must meet higher expectations than more established automakers. That’s why it’s still worth around $380 billion, compared to Toyota’s around $220 billion.

Looking back, it’s clear that Tesla’s market valuation of more than $1 trillion at the start of the year was exaggerated, analysts said. Part of Tesla’s dramatic share price rise in 2020 and 2021 was likely driven by investors hoping the company would make them as wealthy as it had others who bought shares of the company in 2017 when it was worth $40 billion (and considered by some skeptics at the time to be extremely expensive).

“There were times when Tesla looked like it could make someone a millionaire in a short amount of time,” said William Goetzmann, a Yale School of Management finance professor who studies asset prices.

This optimism has become more difficult to maintain as a series of problems have emerged in 2022. The temporary closures of Tesla’s Shanghai factory due to the increase in Covid cases, as well as intense competition from BYD and other Chinese automakers, cast doubt on Tesla’s chances of dominating electric car sales. in this country, the largest automotive and electrical market in the world. The Shanghai factory is Tesla’s largest, accounting for 40% of its total production.

Tesla is expected to release its fourth-quarter and full-year car sales data in the coming days. Wall Street analysts expect the company to deliver 420,000 cars in the last three months of the year, up from 343,000 in the third quarter. That would be impressive, but it wouldn’t be enough for the company to meet its goal of increasing sales by 50% for the full year.

Rising interest rates were a problem for all automakers, and especially for companies like Tesla whose vehicles typically sell for more than $50,000. Higher rates mean higher monthly payments that many buyers cannot afford.

Even though rate hikes by the Federal Reserve and other central banks were beyond Mr. Musk’s control, analysts criticized him for not paying enough attention to Tesla at a critical time.

Daniel Ives, an analyst at Wedbush Securities who has long been optimistic about Tesla’s prospects, likely spoke on behalf of many investors when he suggested 10 things Mr. Musk could do to revive the company’s share price. . Top of the list: Appoint a new Twitter CEO and “refocus attention on Tesla, not Twitter.”

Investors and analysts are divided on the extent to which Mr. Musk’s statements on Twitter have tarnished Tesla’s image among left-leaning consumers most likely to buy an electric car. Even putting those concerns aside, Mr. Musk’s behavior highlighted Tesla’s lack of checks and balances. The company’s board, whose members include the chief executive’s brother, Kimbal Musk, has remained largely silent.

Last month, when several directors testified in a Delaware court in a lawsuit challenging Mr. Musk’s giant compensation package, they said they weren’t concerned about how long the executive was on Twitter. “He will do whatever he needs to to get the results,” Robyn Denholm, Tesla president, said on the witness stand.

Tesla, Mr. Musk, Ms. Denholm and Kimball Musk did not respond to requests for comment.

Len Sherman, an adjunct professor at Columbia Business School who previously worked as a consultant to the auto industry, said Tesla’s board had been extremely respectful of Mr. Musk.

“You don’t have effective governance to curb its worst impulses,” Sherman said. “He runs his show how he wants, and no one can stop him.”

Mr. Sherman, who drives a Tesla and previously owned Tesla shares, is among those who have begun to question whether Mr. Musk is the right person to lead the company as it becomes a mature automaker. He noted that there had been no recent mention of plans to build a $25,000 car that would attract more customers and increase sales.

“That’s not how you go from where Tesla is now to become the next GM or Volkswagen,” Sherman said. “For all his admirable traits, being the only human being on the planet to accomplish what he did, he’s not ideal for the kind of leader Tesla needs to move forward.”

With its visionary leader seemingly disengaged, Tesla is scrutinized by more conventional standards like revenues and profits and less by dreams of world domination.

“Now that cars are ubiquitous,” said Mr. Goetzmann of Yale, “it had to make a transition at some point in its history to not be based on long-term prospects, but on sales figures and things like that.”

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