Tesla shares have plunged 70% in a year of declines for the stock market, underscoring the scale of the wealth evaporation and the unorthodox behavior of its chief executive, Elon Musk.
The plunge in Tesla’s stock price wiped out about $680 billion in market value. And Mr. Musk, once hailed as the genius who reinvented the auto industry, seems increasingly distraught about the Twitter acquisition and has used the social network to vent his displeasure. This week he insulted one of his critics, saying he had “small testicles”.
The spectacle stunned investors and analysts. Many are asking what will happen to stocks, companies and Mr. Musk in 2023. The answer depends largely on Mr. Musk and Tesla’s board.
Will he refocus on Tesla and the myriad challenges it faces? Or will he continue to camp on Twitter? Will Musk sell more Tesla stock to keep Twitter afloat following his $44 billion acquisition, despite his promise not to? Will Tesla’s first new passenger car in three years, the Cybertruck, finally go on sale? And, perhaps most importantly, will Tesla’s board do anything to rein in Mr. Musk?
Those uncertainties are forcing investors to fundamentally reassess Tesla’s prospects amid a deteriorating economy. It remains the most valuable auto company and the only major automaker considered a growth stock. But investors no longer believe Tesla can dominate the auto industry the way Apple has dominated smartphones or Amazon has dominated online retail.
“Tesla’s promise is that at some point, all the cars in the world will be electric, and Tesla will play an important role in that,” said Efraim Benmelech, a professor of finance at Northwestern University’s Kellogg School of Management. “.
But, he added, investors have since reassessed that view and now appear to think legacy automakers such as 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 Mr. Benmelech, who uses Take Tesla as an example in his class. “They have good engineers, good managers. One shouldn’t underestimate the role of competition.”
Mr. Benmelech noted that by most measures, Tesla is doing pretty well. The company has reduced debt and has some of the highest profit margins in the industry. The company reported net income of $8.9 billion for the first nine months of 2022, more than GM’s profits.
This week, there were signs that shares were stabilizing. The stock rose to $122 on Friday from Wednesday’s two-year low of $109.
Since many investors liken Tesla to a tech company, it has to meet higher expectations than more established automakers. That’s why it’s still worth about $380 billion, while Toyota is worth about $220 billion.
In retrospect, Tesla’s stock market valuation of more than $1 trillion at the start of the year was clearly overstated, analysts said. Some of Tesla’s stunning gains in 2020 and 2021 may be due to investors hoping the company will make them as rich as everyone else, who bought shares in the company in 2017 when it was worth $40 billion (Skeptics were, some argue, very expensive at the time).
“Sometimes it looks like Tesla can make someone a millionaire in the short term,” said William Goetzmann, a finance professor at the Yale School of Management who studies asset prices.
That optimism has become harder to sustain as 2022 looms in a series of problems. The temporary shutdown of Tesla’s Shanghai factory due to rising Covid cases, combined with stiff competition from BYD and other Chinese automakers, has cast doubt on Tesla’s ability to dominate electric vehicle sales in that country, the world’s largest automaker and electric vehicle market. The Shanghai plant is Tesla’s largest, accounting for 40% of its total output.
Tesla is expected to release its fourth-quarter and full-year vehicle sales figures in the coming days. Wall Street analysts expect the company to deliver 420,000 vehicles in the final three months of the year, up from 343,000 in the third quarter. That would be impressive, but not enough for the company to meet its goal of growing sales by 50% for the full year.
Rising interest rates are a problem for all automakers, especially companies like Tesla, whose cars often cost more than $50,000. Higher interest rates mean higher monthly payments, which many buyers cannot afford.
Analysts have accused him of not paying enough attention to Tesla at a critical time, even if the Federal Reserve and other central banks raise interest rates beyond Mr. Musk’s control.
Wedbush Securities analyst Daniel Ives, who has been bullish on Tesla’s prospects, may have represented many investors when he suggested 10 things Mr. Musk could do to revive the company’s stock price. Top of the list: Appoint a new CEO for Twitter and “refocus on Tesla, not Twitter.”
Investors and analysts were divided on the extent to which Musk’s tweets had damaged Tesla’s image among left-leaning consumers most likely to buy electric vehicles. Even setting aside those concerns, Mr. Musk’s behavior highlights Tesla’s lack of checks and balances. The company’s board, whose members include the CEO’s brother, Kimbal Musk, has remained largely silent.
When several directors testified in a Delaware court last month in a lawsuit challenging Mr. Musk’s massive compensation package, they said they didn’t care how much time the executive spent on Twitter. “He will do whatever it takes to get results,” Tesla Chairman Robyn Denholm 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 and a former auto industry consultant, said Tesla’s board had great respect for Mr. Musk.
“You don’t have effective governance to control his worst impulses,” Mr Sherman said. “He performed the way he wanted and no one could stop him.”
Mr. Sherman, who drives Tesla and once owned Tesla stock, was among those who began to question whether Mr. Musk was the right person to run the company as it became a full-fledged automaker. He noted that no one has mentioned a plan to build a $25,000 car to attract more customers and drive sales recently.
“That’s not how you go from where Tesla is to become the next GM or Volkswagen,” Mr. Sherman said. “For all his admirable attributes, being the only person on earth who has done what he does, he is not ideal for the kind of leader Tesla needs in the future.”
With its visionary leader seemingly out of touch with reality, Tesla is being scrutinized by more traditional criteria such as revenue and profits rather than dreams of world domination.
“The car is everywhere now,” says Mr. Goetzman of Yale University. Base.”
