For much of this year, as other growth stocks collapsed, Tesla defied gravity. Bulls complained that shares suffered as Elon Musk’s electric car maker made a bid for Twitter. But three months ago, with the stock down just 25 percent from its November 2021 high, it was still possible to believe it would escape the worst of the carnage.
Not anymore. A torrid December cut more than 40 percent of Tesla’s stock down two-thirds from its late September levels. Before a partial rally on Thursday morning, Tesla’s stock value fell a staggering $900 billion from its 2021 peak to $355 billion.
With growth out of fashion on Wall Street and the auto industry facing an uncertain 2023, the reasons for this bearishness are easy to find. Whether it’s arrogance, carelessness, or boredom in his day job, his personal missteps act as catalysts for his downfall.
One of them is the mismanagement of his great public personality. Musk likes to argue that his Twitter presence is of immeasurable value to Tesla shareholders. On the way up, he had an idea. It was a megaphone that helped cement him in the public consciousness as the world’s foremost hawker entrepreneur, even as it led to unpleasant public controversy and run-ins with regulators.
But as he caused chaos and polarization on Twitter in the two months since his takeover, his personal brand — and by extension Tesla’s — has been tarnished.
The second misstep was taking the company’s high stock for granted. Turning his attention to Twitter at a time when the auto industry appears to be on the brink of decline and serious competition in electric cars is finally starting to emerge, even if it turns out to be temporary, seems like seriously bad judgment.
Musk also believed he could treat Tesla stock like a piggy bank. He started selling two days after the stock peaked and continued to sell $40 billion worth of stock, even after he said he would stop (a comment he repeated last week). Given that his stake in Tesla is currently worth $51.7 billion, the dispositions seem significant.
Actions like these help explain how the stock market was able to turn around Musk and how Tesla broke. Where emotion recedes, rational analysis kicks in to provide ample justification for wild reappraisal.
For many, it was possible to believe that Tesla was on the verge of capturing the lion’s share of the huge new electric car market that was about to open up. But as Musk warned on Twitter last week, high interest rates and an uncertain economy point to tough times ahead. With customer waiting lists shrinking sharply in the US and China, Tesla’s two biggest markets, the sustainability of demand has replaced supply as the top concern for the company’s investors for the first time.
Tesla already warned in October that inventory levels are likely to rise further this quarter as production outstrips supplies, and profit margins will come under pressure again. This month, it began offering a $7,500 incentive for anyone who takes delivery of a Model 3 or Model Y by the end of the year.
All of this comes as Tesla approaches the intersection where all growth stocks will eventually reach. Continuing Musk’s promised rapid expansion is starting to look difficult without taking action that will eat into the profits Wall Street now expects.
Over the past two years, Tesla’s 30 percent gross margin on its auto operations (at least until higher costs this spring) was nearly double that of Ford and General Motors, and comfortably above Toyota’s 19 percent. Trying to maintain margins could further boost stock valuations, the growth that still supports the company even after the slide.
None of this has hindered the incredible success Tesla has been able to show as it closes out another year of growth that other automakers can only dream of. But Toyota’s double earnings and 30-fold increase in share price this year still leave room for disappointment.
richard.waters@ft.com