Posted Dec 26 2022 at 7:00 am
Short sellers on Tesla are finally smiling. After falling heavily in disenchantment in years past, they have earned at least $15 billion this year, according to analytics firm S3 Partners. It is that the market capitalization of the darling of the markets has lost nearly 65% of its value since the start of 2022. That is a trifle of 700 billion dollars: more than the value of Toyota, Mercedes Benz, Volkswagen, Stellantis, General Motors and Ford together…
More than a year after its November 2021 peak, when it exceeded $380, the electric car pioneer’s stock price has literally melted to $125 these days. It would certainly have been difficult for him to maintain himself for very long at the stratospheric and irrational level reached at the time. “But the extent of the fall is still surprising! admits Philippe Houchois, financial analyst at Jefferies.
After having stagnated for a long time around 60 billion dollars, Tesla’s market capitalization has soared since the start of 2020 and passed the 1,000 billion mark in October 2021. It has just fallen below the 400 billion mark.
The escapades of his boss, who however are not his first eccentricities, are not for nothing. “Tesla’s stock price has never really reflected the value of the company, but rather the popularity rating of Elon Musk,” said Bertrand Rakoto, consultant at Ducker, in Detroit. “Or this one is collapsing since the takeover of Twitter at the end of October”.
The first steps of the billionaire at the head of the social network were, it is true, eventful to say the least. Hasty dismissals of half the staff, controversial political positions, until the deletion of the Twitter accounts of several critical American journalists in mid-December…
Named “Personality of the Year” by “Time” magazine in 2021, Elon Musk even booed for the first time in mid-December by the 18,000 fans of American comedian Dave Chappelle, who had invited him to go on stage.
Investors are also concerned about Elon Musk’s personal investment in Twitter, to the detriment of the manufacturer. “Give us back our CEO,” tweeted Ross Gerber, CEO of investment bank Gerber Kawasaki, a longtime investor at Tesla, in mid-December. Businessman Leo KoGuan, who presents himself as the third individual shareholder of Tesla, was also disturbed on the social network: “As a fan, I invested in Elon. Of course, I prefer that he remain CEO, but he abandoned Tesla,” he tweeted. They are not the only ones.
I was a multi-billionaire before investing in Tesla, I will remain so if Tesla falls to zero.
I plan to invest more because Tesla will be the biggest company with or without Elon
As a fanboy, I invested bc of Elon. Of course I prefer Elon to be CEO but he left Tesla
— KoGuan Leo (@KoguanLeo) December 14, 2022
The billionaire’s sale of large blocks of Tesla shares to finance the takeover of the blue bird also weighed on the price: in total, these sales have represented 40 billion euros since the start of the year according to Bloomberg, dropping Elon Musk’s stake in the automotive firm to 13%. It is not certain that the promise of the billionaire, Thursday evening, not to sell securities for the next two years, reassures the markets: he had done the same in April and August.
But investors are also beginning to question the company itself. “Thus brought to light, Musk’s practices have caused some to look into all that is wrong with Tesla: the poor quality of the cars, the lack of a distribution network and after-sales service, the localization factories far from the available workforce and equipment…” advances Bertrand Rakoto.
Another factor mentioned, the setbacks of the Autopilot. A pending lawsuit in California has led Tesla attorneys to plead the firm’s inability to properly operate a self-driving car to avoid being charged with fraud. “Or Musk himself had explained that a good part of Tesla’s valuation was linked to Autopilot…” notes Bertrand Rakoto. The fact that Ford and Volkswagen are throwing in the towel on the autonomous car could also dampen hopes for Tesla, valued as a “tech company”.
Finally, some fundamentals of the Tesla model could be called into question. Admittedly, the firm is now extremely commendable (it generated an operating margin of 17.2% in the third quarter of 2022, a fairly extraordinary level for the sector), and is posting spectacular growth (+45% in volume over the first nine months from 2022, to 909,000 units). “And it generated a lot of cash, much more than needed,” notes Philippe Houchois.
A few clouds seem to be looming on the horizon on the demand side, however, particularly in China. According to information from Bloomberg, Tesla has just reduced production rates at its Shanghai factory, where capacity has nevertheless been increased. And price cuts or discounts have been noted in China, the United States and even Europe – a sign that the firm is looking to boost its sales.
Simplicity of the range
“It is too early to know if this is slowing down a market phenomenon or seems linked to Tesla”, underlines Philippe Houchois. One of the keys to Tesla’s success lies in the simplicity of its range, based on two mass-produced models (the Model 3 and Model Y) which allow it to obtain significant effects of scale. “But can it last? Will motorists want to have the same car as their neighbour? This is for me the essential question that arises for Tesla, especially as the competition is growing,” asks Philippe Houchois.
The lack of novelty also applies to the course. “The perception of Tesla as a leader in all things is fading,” comments Jeffrey Osborne, analyst at Cowen, quoted by “Bloomberg”. “We don’t really see what exciting things they do next year”. Few, however, are analysts to revise their opinion on the title: the average price target, which fell from 313 dollars at the start of the year to 255 dollars these days, remains well above the current price.