Elon Musk’s Twitter Obsession Isn’t the Primary Reason for Tesla’s Stock Drop | CNN Business

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A common misconception has emerged about Elon Musk and Tesla: the billionaire’s love affair with Twitter is the main reason why Tesla shares have lost so much this year. But this week’s sharp sell-off in Tesla shares has proven that the problems at Musk’s auto company go beyond Twitter.

Even as Musk has indicated that he may give up his title of CEO at Twitter, investors have grown concerned that Tesla’s sales and earnings outlook is heading for the worse. Sign of weak demand: Tesla announces a rare sale. The company has offered two discounts to buyers who receive a vehicle before the end of the year, initially offering a $3,750 discount earlier this month. Then Tesla doubled that discount to $7,500 on Thursday.

Dan Ives, a technical analyst with Wedbush Securities and a Tesla bull who cut his price target for the stock on Friday, said Friday, from $250 to $175. “The price cuts enacted by Tesla were the straw that broke the camel’s back on the stock.”

Another reason for Tesla’s stock sinking: The US economy could enter a recession next year, hurting auto sales. Musk said in a Twitter Spaces call Thursday that he expects the economy will be in a “serious recession” in 2023.

“I think there will be some higher overall drama than people currently think,” he said, according to Reuters, adding that homes and cars would be disproportionately affected by economic conditions.

Part of the problem with Tesla’s share price is that pundits are questioning whether it’s worth the trillion-dollar valuation it had at the start of the year. At its peak, Tesla was worth more than the 12 automakers on the planet combined, despite owning only a fraction of the sales of any of them. Today it is worth $399 billion.

“It’s got ahead of itself in the near term,” said Gene Munster of Loup Ventures, a Tesla fan. “I still think this could be a much bigger company. I think he’s going to see those kinds of numbers again. But it could take a long time to get there.”

Tesla’s growth prospects—a target of 50% annual sales growth—helped drive that valuation. It admitted in October that it would miss its sales target this year.

The stock’s climb to dizzying heights — up 743% in 2020 alone — has been fueled by Musk’s reputation as a genius who would disrupt the massive global auto industry.

“Tesla was seen as a disruptive technology company, not a car manufacturer, and a good chunk of that premium is tied to Musk,” Ives said.

Tesla’s critics said much of its high value was based on promises Musk made about future products, many of which came years after they were originally promised.

A good example of this is the Cybertruck, Tesla’s pickup truck, which was first unveiled three years ago with promises that production would begin in 2021. Now production is slated to begin next year, with production ramping up in 2024, which puts it in Successor years of other electric pickup offerings from Ford and upstart electric automaker Rivian, both of which have electric pickups available for purchase today. It can also track GM’s planned electric pickup offerings.

“Elon Musk has a pathological problem with the truth,” said Gordon Johnson, one of Tesla’s biggest critics among analysts. “When people say he’s a genius and an innovator, it’s based on all his promises that he never delivers.”

Johnson said Tesla shares will see an even steeper decline, once he starts pricing them like other automakers rather than delivering on their promises. For Tesla to meet its growth goals, he said, it needs to build new factories almost every year, but new factories in Germany and Texas that opened in the spring are still not operating at full capacity. He said its factory in China had to cut back production due to weak sales in the market in the face of Covid restrictions.

“Demand has collapsed in the United States,” he said. “Two months ago, the wait time was two or three months. Now you can have one right away. They’re going to build more cars than they’re selling for the third quarter in a row. It’s the definition of overcapacity.”

Tesla remains the largest maker of electric vehicles worldwide, although that title is being challenged in some key markets, by Volkswagen in Europe and BYD in China. And more competition comes from well-known automakers like Ford and GM.

That’s not to say Twitter played no role in Tesla’s share price demise this year: Tesla shares have lost 66% of their value since Musk’s interest in Twitter was first revealed in April, with a 45% drop since he closed the deal late. October.

Investors were disappointed that Musk appeared to be paying off much of his $44 billion Twitter purchase by selling Tesla stock. Musk, Tesla’s largest shareholder, He has sold $23 billion worth of Tesla stock since his interest in Twitter became public in April.

On Thursday’s Twitter Spaces call, Musk promised that he had finished selling shares of Tesla stock through at least 2024, if not later. But it did not live up to the previous level Promise in April He finished selling Tesla stock, and has sold $14.4 billion of that stock since that time.

“It was Pinocchio’s position for Musk to say he’s done selling shares. Investors want to see him go down the road and not just talk the talk,” Ives said.

Another Twitter factor: Musk named himself CEO of Twitter, the third major company he leads, along with Tesla and SpaceX. Therefore, many people assumed that Musk’s loss of focus on Tesla had spooked her former fans on Wall Street.

But this week started with Musk’s run vote — on Twitter, of course — asking if he should give up the CEO title at his social media game. He promised to comply with the outcome, and 57.5% of those who voted said they wanted him gone.

This departure could take some time — Musk tweeted that he would quit “as soon as I find someone foolish enough to take the job!” He warned in the same tweet that even if he gave up the CEO position at Twitter, he would not withdraw completely, saying that he plans to “run the software and server teams” after finding a new “idiot” to be CEO.

The poll results late Sunday were enough to lift Tesla shares in early trading Monday, but shares ended the day slightly lower, losing significantly more ground each day since. Tesla shares fell 9% on Thursday, ending the week down 18% after another drop of 2% on Friday.

Then there is the question of how much damage the Twitter debacle has done to the Tesla brand. Musk fired thousands of employees, banned journalists while allowing Donald Trump and other previously banned accounts back online, called for the prosecution of Dr. Anthony Fauci, espoused conspiracy theories and made anti-trans remarks in his short stint as CEO.

It may have endeared it to some but angered other potential buyers, including liberals who might be willing to pay a premium for a greener car.

“I think it was measurable damage,” said Munster, who believes that advertising during his Twitter stint cost Tesla 5% of its sales.

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