February 8, 2023

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Tesla had a bad year. Some investors blame Elon Musk.

Tesla had a bad year.  Some investors blame Elon Musk.

in a The general down of stocksthe 65 percent drop in Tesla’s share price stands out due to the amount of evaporated wealth and the unorthodox behavior of its CEO, Elon Musk.

The collapse of Tesla’s share price destroyed about $672 billion in market value. And Musk, once hailed as a genius who restored cars, seems increasingly distracted by his takeover of Twitter and uses the social network to vent his frustrations. He insulted one of his critics this week by calling him “small testicles.”

The scene stunned investors and analysts. And many are wondering what will happen to the stock, the company, and Mr. Musk in 2023. The answer depends largely on Mr. Musk’s board of directors and Tesla.

Will he turn his attention back to Tesla and its Countless challenges? Or will he stay in his camp on Twitter? Will Mr. Musk sell more Tesla shares to keep Twitter going after spending 44 billion dollars to buy that companyDespite promises not to do so? Will Electronic truck, Tesla’s first new passenger car in three years, will it finally be available for sale? And perhaps most importantly, will Tesla’s board of directors do anything to rein in Mr. Musk?

In a flagging economy, these uncertainties have forced investors to fundamentally reassess Tesla’s prospects. It remains the most valuable auto company and the only major automaker considered a growth stock. But investors are no longer convinced that Tesla can dominate the auto industry the way Apple dominates smartphones or Amazon rules online retail.

“Tesla’s promise was that at some point all cars in the world would be electric vehicles, and Tesla will play a major role in that,” said Ephraim Benemlik, professor of finance at Northwestern University’s Kellogg School of Management. .

But, he added, investors have reevaluated the view and now seem to believe that traditional automakers like Ford Motor and General Motors will be able to pose a credible competitive challenge to Tesla.

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“Some of these companies have been around for 100 years,” said Mr. Bin Malak, who uses Tesla as a case study in its chapters. “They have good engineers and good management. No one should underestimate the role that competition plays.”

Mr. Benmelech points out that by most standard measures, Tesla is doing pretty well. The company has reduced its debt and has some of the highest profit margins in the business. reported a net profit of $8.9 billion in the first nine months of 2022, more than general motors happened.

This week, there were signs that the share price was leveling off. Shares rose to $123 on Friday from a two-year low of $109 on Wednesday.

Since many investors compare Tesla to tech companies, it must meet higher expectations than more established automakers. That’s why it’s still valued at about $389 billion, compared to about $226 billion for Toyota.

In retrospect, Tesla’s stock market valuation of more than $1 trillion at the start of the year was clearly overstated, analysts say. Some of Tesla’s share-price skyrocketing in 2020 and 2021 may have been driven by investors hoping the company will make them as rich as others who bought stock in the company in 2017 when it was worth $40 billion (and considered by some skeptics at the time to be extravagant). very pricey).

“There are times when it seems like Tesla can make someone a millionaire in a short time,” said William Gotzman, a professor of finance at Yale School of Management who studies asset prices.

Maintaining that optimism is becoming more difficult as a series of problems unfold through 2022. The temporary closure 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 chances of dominating. on electric vehicle sales in that country, the world’s largest electric vehicle market. The Shanghai factory is Tesla’s largest, accounting for 40 percent of its total production.

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Tesla is expected to release its sales data for the fourth quarter and the full year in the next few days. Wall Street analysts expect the company to deliver 420,000 vehicles in the last three months of the year, up from 343,000 in the third quarter. That would be impressive but not enough for the company to achieve its goal of increasing sales by 50 percent for the full year.

Rising interest rates have been a problem for all automakers, especially companies, like Tesla, that typically sell their cars for more than $50,000. Higher rates mean higher monthly payments that not many buyers can afford.

Even if interest rate hikes by the Federal Reserve and other central banks were outside Mr. Musk’s control, analysts have criticized him for not paying enough attention to Tesla at a critical moment.

Daniel Ives, an analyst at Wedbush Securities who has long been optimistic about Tesla’s prospects, likely speaks for many investors when he suggested 10 things Mr. Musk could do to revive the company’s share price. Top of the list: Name a new Twitter CEO and “focus attention back on Tesla, not Twitter.”

Investors and analysts are divided over how much Mr. Musk’s Twitter comments have tarnished Tesla’s image among left-leaning consumers who are more likely to buy an electric car. Even setting these concerns aside, Mr. Musk’s behavior has highlighted Tesla’s lack of checks and balances. company A group of directorswhich includes the CEO’s brother Kimbal Musk, has been largely silent on its membership.

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Last month, when several executives testified in a Delaware court in a lawsuit challenging Mr. Musk’s gigantic compensation package, they said they were unconcerned about the amount of time the executive was spending at Twitter. “He will do whatever he needs to do to deliver results,” Tesla president Robyn Denholm said on the witness stand.

Tesla, Mr. Musk, Ms. Denholm and Kimball Musk did not respond to requests for comment.

Lynn Sherman, an associate professor at Columbia Business School who previously worked as a consultant to the auto industry, said Tesla’s board of directors has been very respectful of Mr. Musk.

“You don’t have effective governance to rein in his worst impulses,” Mr. Sherman said. “He runs his program the way he wants, and no one can stop him.”

Mr. Sherman, who drives a Tesla and previously owned shares of Tesla, is among those beginning to question whether Mr. Musk is the right person to run the company as it becomes a mature automaker. He noted that there had been no mention recently of plans to build a $25,000 car that would attract more customers and increase sales.

“This is not how you go from where Tesla is now to becoming the next GM or Volkswagen,” Mr. Sherman said. “For all his admirable traits, being the only human on the planet to get what he did get done, he’s not ideal for the kind of leader Tesla needed going forward.”

With its visionary leader seemingly detached, Tesla is scrutinized by more traditional criteria like revenue and profits and less by dreams of world domination.

“Now that cars are so ubiquitous, they’ve had to make a transition at some point in their history to not relying on long-term projections but on sales numbers and things like that,” said Yale’s Mr. Gottzman.