Investors have come to the conclusion that Tesla is not a tech company, but an automaker, Elon Musk’s purchase of Twitter sent Tesla shares down 71%.
Tesla has fallen from its high pedestal in the past year after facing headwinds and suffering from CEO Elon Musk’s privatization of social network Twitter. Tesla’s stock has lost more than $700 billion, Elon Musk’s takeover of Twitter hasn’t helped, and investors have lost faith in the electric car maker’s ability to deliver truly self-driving cars. Investors seem to have realized that the company is primarily a car manufacturer and that its CEO is not a superhuman. 2023 will be very eventful for Tesla.
Can Tesla achieve its self-driving car goals?
For several years, the meteoric rise of Tesla stock has captivated, excited and mystified Wall Street. Despite the company’s mixed performance, its market capitalization was more than $1.2 trillion at one point in 2021, more than most automakers combined. But in 2022, this meteor went off. The company has since lost 71% of that amount, which is more than the value of most companies in the industry. Its mercurial boss, Elon Musk, is now worth more than $200 billion and is no longer the world’s richest man.
However, the latest blow came on Jan. 3 after Tesla missed analysts’ expectations for shipments for a third straight quarter and announced a widening gap between production and shipments, indicating weaker demand for its electric vehicles. The company lost 12% of its market value in one day – about $50 billion, the market capitalization of Ford Motor Company. But again, once optimistic investors now doubt Musk can deliver on his promise to produce 20 million electric cars a year by 2030.
They would also doubt that Autopilot, Tesla’s advanced driver assistance system (ADAS), is about to become a revolutionary fully autonomous driving system. However, according to some analysts, the main reason behind the state of Tesla stock is that investors understand that the company is primarily a car manufacturer and that its boss is not superman. Indeed, Musk has always viewed Tesla as a tech company, a peer of digital giants like Alphabet or Meta, rather than knights of the old economy like Toyota or Volkswagen.
The market has done the same for a while, first when tech stocks soared amid the pandemic-era boom of all things digital, then crashed a year later. In the past, it promised future gains when their growth began to slow and rising interest rates were devalued. . However, in recent months, Tesla’s stock price has undergone a sharper correction than big tech companies like Meta, Apple or Alphabet. This coincided with its more usual challenges as a car company.
Having managed to avoid the worst of the pandemic’s supply chain disruptions, Tesla would be caught up in China’s chaotic retreat from its zero-Covid policy; its large Shanghai factory suffered virus-related shutdowns. And, paving the way for the industry to transition, it now faces stiff competition from established rivals and a few inspired newcomers. Days after Tesla’s disappointing results were announced, Volkswagen unveiled the ID.7 at CES in Las Vegas, a rival to Tesla’s entry-level Model 3 sedan.
In addition, analysts add that EV buyers, meanwhile, are less willing than early adopters to overlook Tesla’s questionable build quality, Autopilot reliability and its improved version, FSD (Full Self-Driving). Natural Tesla owners among wealthy progressives are less willing to ignore the libertarian Twitter antics that Musk bought in October and greedily denounced — especially now that they have so many electric car alternatives to choose from to clear your conscience.
In other words, Tesla is no longer the only player in town, and certainly not a tech glove. But for an electric car maker, that’s still impressive. In 2022, it delivered 1.3 million vehicles, 40% more than the previous year, and opened two new assembly plants. It is working on a smaller, cheaper vehicle and will begin introducing its long-awaited Cybertruck pickup this year. And it’s still worth about $343 billion, more than the other three biggest automakers combined.
Here are a few reasons why Tesla stock is literally crashing
Tesla isn’t the only company to see its stock fall in value. The stock market as a whole fell in 2022, and all manufacturers in the auto sector saw their shares fall. Major players like General Motors and Ford lost nearly 40%, while startups like Rivian and Lucid lost more than 80%. All automakers have faced the same headwinds as the economy in general. They also started 2022 with a spare parts shortage that kept dealers unusually busy.
They ended the year with very high car prices that could deter potential customers. According to analysts, US car sales in 2022 fell to the lowest level in the last ten years. And Tesla’s sales may be up 40% from 2021, but they remain below its ambitious growth targets and analysts’ expectations. And as we mentioned above, the competition is intensifying. At the upper end of the market, household names such as Mercedes-Benz, BMW and Audi, as well as Lucid, Rivian and Polestar, are beginning to eat away at market share.
“We have a bunch of cars that compete with Tesla because they’re performance-oriented, they’re luxury,” Autotrader editor Brian Moody said. Meanwhile, the likes of the Kia EV6, Ford Mach-E and redesigned Chevy Bolt are starting to battle the mass electric car market. Competition is also intensifying in China, a crucial market for Tesla and its rivals. Tesla will still account for 65% of electric car sales in the US. But this percentage is decreasing, which the stock market does not like.
Another big issue driving Tesla’s stock down is Musk’s takeover of Twitter. The latter has founded and led several companies over the past two decades, but his takeover of Twitter last year has nothing to do with, say, running SpaceX. The aura surrounding Musk—his admirers, a genius and a visionary—is one of the reasons so many people want a Tesla. Today, Musk has essentially become a professional Twitter troll, posting provocations on Twitter and willingly embracing certain right-wing positions from his mighty back on the social media giant.
The Morning Consult poll found that between October and November 2022, Tesla’s net approval rating fell 20 percentage points among Democrats and rose 4 points among Republicans. This could affect sales, as liberal readers want to buy more electric cars. Musk also had to sell billions of dollars worth of Tesla stock to finance the acquisition of the social media company, hurting the stock. Meanwhile, to the chagrin of some of his staunchest defenders, his time on Twitter is cutting into his time for Tesla.
Many Tesla investors are calling for Musk to appoint a new CEO at Twitter and step back from the social media company. “This is the moment of truth for Musk to manage the damage now or the excruciating pain will continue,” said analyst Daniel Ives, a longtime Tesla fan who criticized Musk’s Twitter purchase. If Tesla shares continue to fall, the company’s value could fall below that of Meta, the social media company that owns the Facebook, WhatsApp and Instagram platforms.
With Tesla shares down 6.7% in U.S. premarket trading on Friday, its valuation will fall below Meta, when it was almost three times more important than the latter at one point last year. If the pre-market moves continue, Meta will have a market cap of $330.3 billion. That could far surpass Tesla’s value of $343 billion at the time of writing.
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