Tesla’s spectacular and unexpected crash

Tesla short sellers are finally smiling. After falling sharply in disenchantment in previous years, they have made at least $15 billion this year, according to research firm S3 Partners. It is that the market value of the markets’ darling has lost almost 65% of its value since the start of 2022. That’s a paltry $700 billion: more than the value of Toyota, Mercedes Benz, Volkswagen, Stellantis, General Motors and Ford combined…

More than a year after the peak in November 2021, when it exceeded $380, the electric car pioneer’s share price has literally melted to $125 these days. It would certainly have been difficult for him to sustain himself for very long at the stratospheric and irrational level reached then. “But the scale of the decline is still surprising!” admits Philippe Houchois, financial analyst at Jefferies.

After stagnating for a long time around $60 billion, Tesla’s market capitalization has skyrocketed since the beginning of 2020 and passed the $1,000 billion mark in October 2021. It just crossed the $400 billion mark downwards.

Eccentricities

The escapades of his boss, who is not at his first eccentricities, are not for nothing. “Tesla’s stock price has never really reflected the value of the company, but rather Elon Musk’s popularity rating,” said Bertrand Rakoto, a consultant at Ducker, in Detroit. “However, it has been collapsing since the takeover of Twitter at the end of October”.

The billionaire’s first step at the helm of the social network was certainly eventful to say the least. Hasty dismissals of half the staff, controversial political positions, until the deletion of several critical American journalists’ Twitter accounts in mid-December…

Elon Musk was named “Personality of the Year” by “Time” magazine in 2021. dented for the first time in mid-December by the 18,000 fans of the American comedian Dave Chappelle, who had invited him to go on stage.

Investors are also worried about Elon Musk’s personal investment in Twitter, to the detriment of the manufacturer. “Give us our CEO back,” tweeted Ross Gerber, CEO of investment bank Gerber Kawasaki, a longtime investor in Tesla, in mid-December. Businessman Leo KoGuan, who introduces himself as Tesla’s third individual shareholder, also came forward on the social network: “As a fan, I invested in Elon. Of course I prefer him to remain CEO, but he left Tesla,” he tweeted. They’re not the only ones.

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, which has dropped Elon Musk’s stake in the car industry . fixed at 13 per cent. It is not certain that the billionaire’s promise on Thursday night not to sell securities for the next two years will calm the markets: he had done the same in April and August.

Autopilot setback

But investors are also beginning to question the company itself. “Thus, Musk’s practices have led some to examine everything that is wrong with Tesla: the poor quality of the cars, the lack of a distribution and after-sales service network, the location of factories far from the available workforce and equipment manufacturers…” says Bertrand Rakoto .

Another factor mentioned is autopilot recoil. A pending lawsuit in California has Tesla’s lawyers citing the company’s inability to properly operate a self-driving car to avoid being accused of fraud. “But Musk himself had explained that a good part of Tesla’s valuation was tied to Autopilot…” notes Bertrand Rakoto. The fact that Ford and Volkswagen are throwing in the towel for the self-driving car may also dampen the hopes of Tesla, which is valued as a “tech company”.

Finally, some of the basic principles of the Tesla model can be called into question. Admittedly, the firm is now extremely profitable (it generated an operating margin of 17.2% in the third quarter of 2022, a rather extraordinary level for the sector), and is showing spectacular growth (+45% in volume over the first nine months) from 2022 to 909,000 units). “And it generates a lot of money, much more than necessary,” notes Philippe Houchois.

However, a few clouds appear to be looming on the horizon on the demand side, particularly in China. According to information from Bloomberg, Tesla has just reduced the production rate at its Shanghai factory, where capacity has nevertheless been increased. And price cuts or rebates have been noted in China, the US and even in Europe – a sign that the company is looking to boost sales.

The simplicity of the assortment

“It is too early to know whether this slowdown is a market phenomenon or specifically linked to Tesla”, emphasizes Philippe Houchois. One of the keys to Tesla’s success lies in the simplicity of its lineup, based on two mass-produced models (Model 3 and Model Y), which allow it to achieve significant economies of scale. “But can it last? Will drivers want the same car as their neighbor? This is, for me, the essential question that arises for Tesla, especially as the competition grows,” asks Philippe Houchois.

The lack of novelty also weighs on the price. “The perception of Tesla as a leader in all things is fading,” commented Jeffrey Osborne, an analyst at Cowen, quoted by “Bloomberg”. “We can’t really see what exciting things they will do next year”. However, few analysts are revising their opinion on the title: the average price target, which fell from $313 at the beginning of the year to $255 these days, is still well above the current price.

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