Tesla investors await evidence of demand and board action and weigh downside risks in 2023

Tesla Inc stock has lost half its value this year, weighed down by concerns that CEO Elon Musk has treated the electric car maker like an “automated teller machine,” as one Tesla bull said recently.

Concerns about cooling demand, especially in China, are adding another layer of concern for Tesla.
for the new year. Most investors are skeptical that Tesla’s board of directors will rein in Musk, seeing many of the board members as too closely associated with him and unlikely to act independently.

Still, many on Wall Street see the two-year lows that Tesla can’t seem to shake off as a buying opportunity in a company with a bright outlook.

“Lately, the stock has been unbelievable in terms of investor sentiment,” said CFRA’s Garrett Nelson. “There is a growing recognition that the sooner Elon Musk takes over as chairman at Twitter and appoints someone to take over day-to-day operations, the better off Tesla investors will be.”

This week, Tesla’s Dan Ives didn’t mince words in calling Musk’s constant Twitter post a “nightmare” and making the comment about Tesla as Musk’s ATM.

The billionaire bought the social media company in October for $44 billion and promptly launched dozens of controversial and seemingly haphazard decisions, including thousands of layoffs.

In China, demand and production are in focus

Tesla denied reports of slowing production in China. Analysts say recent price cuts in both China and the US point to a demand problem.

There’s the risk of an economic downturn, which is beyond Tesla’s control, but there’s also a growing concern that Tesla is about to face more competition for electric cars, both from startups like Rivian Automotive Inc. RIVN,
and old automakers like General Motors,
and Ford Motor Co. F,
Just as their narrow and expensive product line hasn’t been updated in years.

If it’s any consolation, Tesla appears to have a solid handle on brand recognition among electric vehicle makers. A recent survey by Momentive, the maker of SurveyMonkey, found that Tesla has the highest discrimination among US adults familiar with electric vehicles.

Higher odds of board action, share repurchases

Mark Goldstein, the acting head of US research at ISS Advisory, said the board needs to make sure CEOs and other senior executives can do the jobs they’re being compensated for.

“Surely, serving a CEO in several companies would certainly raise eyebrows,” Goldstein said, speaking in broad terms.

Even if a CEO has time to play both roles, Goldstein said, the board and executives never know when a deeper crisis might arise, which would suddenly require time in meetings and the CEO’s undivided attention.

Besides being the “head of con” at Twitter and “technoking” at Tesla, Musk is also at the helm of SpaceX, among other companies and projects.

“Sure, some people have more energy and need less sleep, but maybe not enough to compensate for having a totally separate job,” Goldstein said. He said it was more difficult if the businesses were differentiated.

Tesla board members may also monitor Tesla employees working for Twitter. There may be good business reasons for doing so, and employees may volunteer their time, but the board may want to check and ensure Tesla’s resources are used for Tesla’s benefit or at least not interfere with Tesla’s business, he said.

In other words, investors want to make sure that the CEO and board members “have enough time to devote to the company,” and that the board makes sure that the CEO is focused enough on the company, said Briana Castro, proxy advisor to Glass and Lewis’s senior research director. United State.

Castro said that if there are many personal relationships between board members and CEOs, it could make it difficult for board members to communicate any concerns to the CEO.

Shareholders are less likely to “rock the boat” if a company’s stock is rising. In the case of Tesla, now that the stock has fallen, there may be an increase in shareholder activity, and an increase in support for shareholder proposals at the next general meeting, Castro said.

In recent days, some discontent has surfaced among Tesla investors, prompting Musk to tweet that he will “make sure” his Twitter acquisition benefits Tesla shareholders in the long term.

Tesla is looking to end the year down about 55%, compared to losses of about 18% for the S&P 500. SPX,

There could be a lot to get excited about in 2023. CFRA’s Nelson said Tesla’s year-over-year profit growth is likely to be “among the strongest” in the sector in 2023, equating to growth of about 40%. This is mostly thanks to the ongoing production ramp-up of the Austin and Berlin factories, he said.

Moreover, the sell-off increased the odds of announcing a share buyback, likely in the $5 billion to $10 billion range. And US auto sales have a “major tailwind” from federal EV credits, for which certain Model 3 and Model Y versions will be eligible starting Jan. 1.

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