For Tesla, 2022 Will Be Remembered As the Year of a Stock Market Crash As Spectacular As Unexpected.
Tesla's market cap drop of more than 65% is partly due to Elon Musk's antics, but also to real concerns about Tesla's model.
Short sellers on Tesla are finally smiling. After having been heavily disappointed in the past years, they have gained at least 15 billion dollars in 2022, according to S3 partners. This is because the market capitalization of the market's golden child has lost nearly 65% of its value since the beginning of 2022.
That's a whopping $700 billion: more than the value of Toyota, Mercedes Benz, Volkswagen, Stellantis, General Motors, and Ford combined...
More than a year after its peak in November 2021, when it had exceeded 380 dollars, the stock market price of the electric car pioneer has melted to 123 dollars these days. It would certainly have been difficult to maintain the stratospheric and irrational level reached at the time for very long. But the magnitude of the fall is still surprising!
After having stagnated for a long time around 60 billion dollars, Tesla's market capitalization has soared since the beginning of 2020 and passed the 1,000 billion mark in October 2021. It has just crossed the $400 billion mark on the downside.
Elon Musk's eccentricities weigh on Tesla's stock price
The antics of its boss, who is not at his first eccentricities, are not for nothing. “Tesla's stock price has never really reflected the company's value, but rather Elon Musk's popularity rating,” says Bertrand Rakoto, a consultant at Ducker in Detroit. “Now that one is plummeting since the Twitter buyout in late October 2022.”
The first steps of Elon Musk at the head of the social network have been, to say the least, eventful.
Firing half of the staff, taking controversial political positions, and even deleting the Twitter accounts of several critical American journalists in mid-December 2022 ... Named “Personality of the Year” by Time magazine in 2021, Elon Musk was even booed for the first time in mid-December 2022 by the 18,000 fans of the American comedian Dave Chappelle, who had invited him to come on stage.
Investors are also concerned about Elon Musk's investment in Twitter, to the detriment of the manufacturer. “Give us back our CEO,” tweeted Ross Gerber, CEO of investment bank Gerber Kawasaki, a long-time investor in Tesla, in mid-December 2022. The businessman Leo KoGuan, who presents himself as the third individual shareholder of Tesla, also expressed himself on the social network: “As a fan, I have invested in Elon. Of course, I prefer him to remain CEO but he has abandoned Tesla,” he tweeted. They are not the only ones.
The billionaire's sale of large blocks of Tesla shares to finance the bluebird buyout has also weighed on the share price: in total, these sales have amounted to $40 billion since the beginning of the year, according to Bloomberg, dropping Elon Musk's stake in the car firm to 13%. It is not sure that the promise of the billionaire, Thursday evening, December 22, 2022, not to sell more shares for the next two years, reassures the markets: he had done the same in April and August 2022 ...
Tesla's Autopilot setbacks
But investors are also beginning to question the company itself, and that's probably an even bigger problem for Tesla. Thus highlighted, Musk's practices have led some to focus on everything that is wrong with Tesla: the poor quality of the cars, the lack of a distribution network and after-sales service, the location of factories far from the available workforce, and equipment manufacturers ...
Another factor mentioned was the setbacks of Tesla's Autopilot.
An ongoing trial in California has led Tesla's lawyers to plead the firm's inability to make an autonomous car work properly, so as not to be accused of fraud. However, Elon Musk himself had explained that a good part of Tesla's valuation was linked to the Autopilot ... The fact that Ford and Volkswagen are throwing in the towel on the autonomous car may also have dampened hopes in Tesla, valued as a “tech company.”
Finally, some of the fundamentals of the Tesla model could be called into question.
Certainly, the firm is now extremely profitable (it had an operating margin of 17.2% in the third quarter of 2022, a rather extraordinary level for the sector), and is showing spectacular growth (+45% in volume over the first nine months of 2022, to 909,000 units). And it is generating a lot of cash, much more than it needs to.
However, there are some clouds on the horizon on the demand side, especially in China. According to information from Bloomberg, Tesla has just reduced production at its Shanghai factory, where capacity has been increased. And price cuts or discounts have been made in China, the United States, and even Europe - a sign that the firm is looking to boost sales.
Some point to the simplicity of Tesla's range and the lack of novelty
It's too early to tell whether this slowdown is a market phenomenon or specifically related to Tesla. One of the keys to Tesla's success is the simplicity of its range, based on two mass-produced models (the Model 3 and Model Y), which allows it to achieve significant scale effects.
But can it last? Will motorists want to have the same car as their neighbors? For many experts, this is the key question facing Tesla, especially as the competition grows.
Tesla's lack of innovation is also weighing on the stock price. The perception of Tesla as a leader in everything is fading. It's not clear what exciting things they will do next year. Few analysts are revising their views on the stock, however: the average price target, which has fallen from $313 at the start of 2022 to $255 these days, remains well above the current price.
Some reading
The 5 Big Moments That Led Elon Musk’s Twitter Into the Middle of a Huge Crisis. Elon Musk is now looking for “someone crazy enough” to succeed him as CEO of Twitter.
ChatGPT, OpenAI’s Artificial Intelligence, Is Causing a Stir on the Internet, but These Real-World Use Cases Remain to Be Tested. It remains to be seen whether the rising star of the AI will be anything more than a shooting star.
Corporations Through History. A fascinating dive into the history of corporations through time.
With the Forced Diet That Elon Musk Is Imposing on It, Twitter Should Return to Financial Equilibrium by 2023. Elon Musk expects a turnover of 3 billion dollars for 2023 and a positive cash flow.
Soon 60 Successful Rocket Launches in 2022: SpaceX Continues Its Impeccable Track Record With Its Reusable Rockets. While Europe is trying to catch up with its launchers, SpaceX’s rocket has become a metronome, firing once or several times a week.