For much of this year, as other growth stocks tumbled, Tesla seemed to defy gravity. The bulls complained that shares of Elon Musk’s electric car maker were hurting because of its Twitter bid. But just three months ago, when the stock was down just 25% from its November 2021 peak, there was still reason to believe it would escape the worst of the carnage.
Not anymore. A horrible December cut more than 40% of Tesla shares, leaving them two-thirds below their level at the end of September. Before a partial rebound early Thursday, Tesla’s stock market value had fallen to $355 billion, a staggering drop of nearly $900 billion from its 2021 peak.
It’s easy to find reasons for this sell-off at a time when growth is no longer fashionable on Wall Street and the auto industry faces an uncertain 2023. But Musk himself has to shoulder some of that. Whether out of pride, recklessness, or simply boredom with his day job, his personal missteps served as a catalyst for decline.
One is the mismanagement of his own overblown public persona. Musk likes to say that his presence on Twitter has been of immeasurable value to Tesla shareholders. As he climbs, he scores a point. It was a bullhorn that helped cement him into the public consciousness as the world’s first maverick entrepreneur, even as it sparked nasty public bickering and a run-in with regulators.
But as he fueled chaos and polarization on Twitter in the two months since the takeover, his personal brand — and, by extension, Tesla’s — has been tarnished.
A second misstep was taking the company’s lofty stock for granted. Turning his attention to Twitter at a time when the auto industry seems on the verge of a downturn, and as serious competition in electric vehicles is finally starting to mount, seems like very bad judgment, even if it only turns out that temporary.
Musk also appears to have believed he could treat his Tesla stock holdings like a piggy bank. He started selling two days after the stock peaked and sold just under $40 billion of his shares, continuing to sell even after announcing he would stop (a comment he repeated last week). With its current stake in Tesla now worth $51.7 billion, the divestments look significant.
Actions like these help explain how the stock market spell that Musk managed to spin around himself and Tesla was broken. And where emotion has receded, rational analysis has stepped in to provide sufficient justification for a wild reassessment.
For many, it was possible to believe that Tesla was about to grab the lion’s share of a giant new electric vehicle market that was about to open up. But as Musk warned on Twitter last week, higher interest rates and an uncertain economy portend tough times ahead. With customer waiting lists down sharply in Tesla’s two largest markets, the United States and China, demand sustainability has replaced supply for the first time as Tesla’s primary investor concern. the company.
Tesla had already warned in October that inventory levels would likely rise further this quarter, with production outpacing shipments, and profit margins coming under pressure again. This month, it began offering $7,500 incentives to anyone taking delivery of a Model 3 or Model Y before the end of the year.
All of this comes as Tesla nears the crossroads that all growth stocks will eventually reach. Sustaining the rapid expansion promised by Musk is starting to look difficult without taking steps that will eat away at the earnings Wall Street now expects.
Over the past two years, the 30% gross margin on Tesla’s auto business (at least, until costs rise this spring) was about double that of Ford and General Motors, and comfortably above Toyota’s 19%. Seeking to maintain margins could further erode the valuation of growth stocks that still supports the company, even after the fall.
None of this takes away from the incredible success Tesla can report as it wraps up another year of growth that other automakers could only dream of. But a stock market value that’s double Toyota’s and a share price at 30 times expected earnings this year still leaves room for further disappointment.
richard.waters@ft.com
