The New York Times reports that investors are currently re-evaluating the premise that helped Tesla share price skyrocket and make CEO Elon Musk the richest man in the world.
Tesla’s $1 trillion valuation only makes sense if investors believe the electric car company is on track to dominate the auto industry the way Apple dominates the smartphone market or Amazon in the past. online retail segment.
But Tesla’s stock has fallen more than 40% since April 4 – a much steeper drop than the market as a whole, evaporating more than $400 billion in market value. And these disturbances have drawn attention to the risks the company faces. These include increased competition, a scarcity of new products, lawsuits accusing the company of racial discrimination, and severe manufacturing problems at Tesla’s Shanghai factory, which the company uses to supply its products. for Asia and Europe.
Musk didn’t help the stock price up by turning his Twitter offer into a financial play. Musk’s antics reinforced the perception that Tesla lacked an independent board of directors that could prevent him from doing things that could harm the company’s business and brand.
Shares of Tesla have fallen more than 40% since April 4 – a much steeper drop than the market as a whole.
Andrew Poreda, a senior analyst specializing in socially responsible investing at Sage Advisory Services, an investment firm in Austin, Texas, said:From a corporate governance point of view, Tesla has a lot of red flags. They have almost no checks and balances“.
Even longtime Tesla optimists are expressing doubts. Daniel Ives, an analyst at Wedbush Securities, is one of the biggest believers in Tesla on Wall Street. But on Thursday, Wedbush lowered its price target for Tesla from $1,400 to $1,000. Ives cited Tesla’s problems in China, where lockdowns have limited supplies of critical components and materials and demand for cars.
Ives said: “There is a new reality for Tesla in China and the market is reassessing the risks“.
Manufacturing problems in China are one of the reasons why Tesla has become the most valuable car company in the world. Tesla cars have been a huge hit with Chinese buyers, stoking hopes of super-fast growth in the world’s largest car market. Tesla’s market share in China peaked at 2.5% in the first quarter of 2022, roughly equaling luxury carmakers Mercedes-Benz, BMW and Audi.
Michael Dunne, chief executive officer of ZoZoGo, which advises companies in the electric car market, said there are also supply chain headaches in China.
Dunne said:Chinese consumers are very upset, they are worried about the future. That’s a big challenge Tesla faces in China“.
Shares of Tesla have fallen more than 40% since April 4 – a much steeper drop than the overall market, evaporating more than $400 billion in market value.
Of course Tesla stock is also suffering from the same general problems that are roiling stock markets around the world: Conflict in Ukraine, rising interest rates, recession threat, supply chain chaos and inflation increased. Still, Tesla stock has fallen far behind other Silicon Valley giants like Apple or Alphabet, which owns Google.
Last year, Tesla accounted for three-quarters of all electric cars sold in the US. The company is several years ahead of its competitors in battery technology and software. But two models — the Model 3 sedan and the Model Y sport utility vehicle — make up 95 percent of Tesla’s sales. The company’s next consumer vehicle is a pickup truck, which has been delayed several times and is expected to be until next year at the earliest.
And competition from the likes of Hyundai, Ford and Volkswagen is growing, giving drivers more choices.
Jesse Toprak, an auto industry veteran who is principal analyst at Autonomy, an electric vehicle supply company, says Tesla’s market share will fall below 40% by the end of 2023, despite sales Its sales will continue to increase.
Mr. Toprak said: “Tesla’s market share will be smaller. The monopoly on electric vehicle sales in the US will slowly decrease“.
Tesla also faces stiff competition in Europe, where electric vehicles make up 13% of new car sales. That foreshadows what could happen in the US, where sales of battery-powered cars are just starting to soar. Volkswagen, which has invested heavily in electric vehicles, sold 56,000 battery-powered cars in Western Europe in the first three months of the year, trailing only Tesla with sales of 58,000, according to figures compiled by Schmidt Automotive Research in Berlin. fit.
“Tesla’s market share will be smaller. The monopoly on electric vehicle sales in the US will slowly decrease”
Tesla’s ability to serve the European market will improve as a new factory near Berlin ramps up production. In the US and elsewhere, the company has profited from passionately loyal buyers who see Musk as a visionary and are willing to wait months or years for their cars. company.
But as electric cars become popular because of skyrocketing gas prices, the next wave of customers may not be able to stand the wait or lose interest in Musk. Toprak said: “The next generation of electric vehicle buyers will be the ones who feel such a purchase makes financial sense for them. Tesla’s brand image will be less useful“.
Tesla’s image is under pressure in ways that could hurt the automaker with its politically liberal, environmentally conscious customers who have long been the the company’s biggest customer. California’s Department of Fair Employment and Housing is suing Tesla alleging that it allowed racism and harassment to thrive at its factory in Fremont, California, near San Francisco.
In another twist, the S&P 500 ESG index, a list of companies that meet certain environmental, social and governance standards, kicked Tesla out last month. S&P said it was troubled by racist claims and poor working conditions at the company’s Fremont factory.
Musk responded to S&P’s decision by writing on Twitter that the movement to adopt environmental, social and governance standards for corporations is a “The scam has been weaponized by rogue social justice warriors“.
Musk followed up that Twitter post by announcing that he was switching allegiance away from the Democratic Party, which he said had “become the party of division & hatred”, and will now Vote for the Republican Party. Political statements like that are sure to alienate some car buyers from Tesla.
Carla Bailo, executive director of the Center for Automotive Research in Ann Arbor, Mich., said:The more political Musk becomes, the more that can start to influence buyer decisions“.
Management revenue is another risk. Musk is a notoriously demanding boss who warned employees on Twitter that “work ethic expectations would be extreme” if he took over the social media platform.
The turmoil at Tesla is obvious. Many of their former senior managers have passed away and are now prominent figures in the startup scene. Take for example Celina Mikolajczak, head of production at fledgling battery maker QuantumScape, who previously helped develop batteries at Tesla. Gene Berdichevsky, another former Tesla battery developer who is the CEO of Sila Nanotechnologies. Sila announced this week that it will supply materials for advanced batteries to Mercedes-Benz.
Lucid, the only electric car maker to beat Tesla in Environmental Protection Agency tests of how far an electric car can go on a full charge, was founded by Peter Rawlinson , a former top Tesla engineer until he fell out with Musk. Lucid’s headquarters is in Newark, California, a short drive from Tesla’s Fremont factory.
Musk’s admirers say he has helped advance zero-emissions vehicles by seeding the industry with talent. But critics see the danger that Tesla will never develop a stable, experienced management team who can run the company should anything happen to Musk.
Poreda of Sage Advisory said: “You can’t treat your employees badly in a tight labor market like we do. A bright man cannot make his vision a reality without a lot of really smart people by his side“.
Amid all these problems and risks, Musk has taken his time to acquire Twitter, though he seems to be thinking differently about the deal lately. The foray into social media has some Tesla investors wondering why the boss spends so much time writing tweets when the world is in such turmoil.
Source: New York Times