“This whole narrative about Tesla being a leader in everything they do is waning… Tesla shares tend to work best when you can create a feverish narrative about something coming. It is unclear what is to be excited about it in the new year.”
Jeffrey Osborne of Cowen & Co.
“From a brand perspective, Elon Musk is Tesla and Tesla is Elon Musk… The more Elon uses Twitter
in a political manner, the more he is potentially tarnishing the Tesla brand.”
Robert Schein, chief investment officer at Blanke Schein Wealth Management, which owns Tesla shares.
The minor setbacks to Tesla’s manufacturing goals result from delays in getting new gigafactories online in Austin, Texas and Berlin, Germany (pictured above). The slack in demand in China, site of Tesla’s largest factory, has resulted in a 20% reduction in output goals. And sure, Wall Street has rocked up and down (mostly down) across the board as global instability and a nascent Fed-driven recession have become prime market movers. It’s not exactly sad to see that Tesla’s main shareholder, Elon Musk, is no longer the richest man in the world, but according to some stock analysts, the worse may be yet to come.
I know, I know… I’m dancing around the obvious. But you have to start with hard numbers, representing an economic reality that is well below average Wall Street declines. And yes, Fed rate hikes have impacted all industries that use short-term debt as part of their core businesses, but…. “The stock was never for the faint of heart, given its volatility and the mercurial style of its chief executive, Elon Musk. Still, the magnitude of this year’s rout is staggering: It has lost more than 60% through Wednesday’s close [12/21], on pace for a record annual decline, and erasing about $626 billion of shareholder value.
“Two years to the day after Tesla joined the Standard & Poor’s 500 index, investors are confronting a new reality. Competition from established major automakers is intensifying, threatening Tesla’s dominant market share. Analysts also see little in the pipeline to reignite the sort of rabid demand for the shares seen in 2020. Meanwhile, the stock is about 40% below the level at which it joined the benchmark…
“Analysts have been scrambling to reassess their outlook given the stock’s free fall, more modest earnings expectations and the overall reset in valuations of growth companies: Wall Street’s average price target for Tesla has now sunk to the lowest level in more than a year.
“The stock fell 8.1% on Tuesday [12/20] to $137.80, its weakest since November 2020, after Evercore ISI and Mizuho Securities became the latest to slash projections. On Wednesday [12/21] before closing at $137.57, it briefly fell below $136.03, the level where the shares were trading in November 2020 when S&P Dow Jones Indices announced that the stock would be included in the S&P 500 index.
“Given the stock’s dive, the average analyst target of about $259 — which is a far cry from the record close of $409.97 the shares touched in November last year — implies a roughly 90% gain over the next 12 months from Tuesday’s close, suggesting there may be room for that gap to narrow.” Esha Dey writing for Bloomberg on the Los Angeles Times, December 23rd. Projections for Tesla’s futuristic all electric truck have gone from rosy internal numbers to downright major skepticism from outside analysts.
Even as nations are responding to reconfiguring energy policies away from fossil fuels, an expected mega-boost for electric vehicle sales, Tesla’s brilliant battery control systems are now ubiquitous. Others are also improving that technology. And carmakers all over the world are introducing new, often more affordable all-electric models, with range increasing by the day. While there is still a severe shortage of the needed level three charging stations, that big rollout has begun. And so many competitors, particularly German, Korean and American, have overcome those “fit and finish” complaints that have plagued Tesla models, particularly the early releases. Ask anyone who has attended any of the recent autos shows… the selection is awesome.
While gross revenues to Tesla are expected to grow just based on the new manufacturing capacity, the waiting period for a new Tesla has fallen from weeks or months to a day or two. Profitability? Not so much. “Tesla shares have been among the weakest, partly because of worries that a downturn could crimp demand for costly electric vehicles. Only Meta Platforms has posted a steeper decline among the 10 NYSE FANG+ index members, which include Facebook, Amazon, Netflix Inc. and Google.
“Musk’s purchase of Twitter made matters worse as concern grew that his preoccupation with the social media platform was reducing his focus on Tesla. He also sold off a chunk of his shares to help finance the deal… Yet when it comes to valuation, Tesla is still the fourth-most expensive stock on the NYSE FANG+ index, trading at a multiple of 33 times estimated 2022 earnings.” Dey.
Some wags have suggested that Musk’s severe jerk into right-wing politics might help marketing in red oil and gas states where sales lag the blue big city numbers. But even with the opening of a Texas plant, as gas prices have fallen again, the lure of a climate-change agenda remains exceptionally low in GOP communities. Driving an electric car is so “Democrat.”
“No development has managed to buoy the shares for long in 2022, including the decision to split the stock and dangling the possibility of a share buyback. Musk’s Twitter poll about stepping down as CEO of that company also failed to stem the slide. And his subsequent confirmation Tuesday [12/20] that he will indeed resign from the position hasn’t sparked any major relief rally.
“It’s a time of reckoning for Tesla investors, many of whom see Musk’s ability to drive the company to success as forming the foundation for its potential. That partly explains why in a year when Tesla’s earnings are expected to grow more than 80% and revenue to expand nearly 55%, the dive in the shares has been so deep.” Dey. Disney dabbled in state politics in Orlando. The CEO who made those moves is gone now. While Musk owns too much Tesla to be ousted, the brand has been seriously tainted by his Twitter antics, particularly his treatment of his employees. And the competition marching in is formidable.
I’m Peter Dekom, and while Steve Jobs knew when to take the stage to boost his company’s sales, Elon Musk apparently believes Tesla cannot be hurt by his own stagecraft.
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