The electric car company is more valuable than its rivals because of investors’ faith in Elon Musk’s vision, but his ownership of Twitter and increasingly erratic behavior are destroying it.
Massive job cuts, layoffs and a flight of advertisers marked the first month of Elon Musk’s takeover of Twitter. Whether his sledgehammer restructuring will save or kill Twitter, this ill-advised acquisition has an undeniable impact on Musk’s most important business and the source of most of his wealth: Tesla. With the electric carmaker’s stock plummeting, observers are questioning Musk’s mythic status as the world’s preeminent tech entrepreneur.
“Everybody’s asking: Does he know what he’s doing?” says Olaf Sakkers, general partner at RedBlue Capital, which invests in mobility startups. “I think a lot of people are starting to doubt it. And his image will be damaged more and more. »
Elon Musk has used Twitter to mock or attack politicians, mostly Democrats, including President Joe Biden, Representative Alexandria Ocasio-Cortez and Senator Ed Markey. But Mr Markey’s response highlighted why this was not the smartest move. “One of your companies is subject to an FTC consent decree. NHTSA is investigating another man suspected of killing people. And you waste your time online looking for conflict,” he tweeted. “Fix your commitments. Or Congress will. »
This is in stark contrast to when writer Ashley Vance wrote in a 2017 book that Musk’s “instant enthusiasm for tackling the impossible made him a Silicon Valley god.” Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future. In it, he noted Musk’s remarkable achievement in keeping Tesla alive and sparking the electric car revolution that has since swept the global auto industry, and his equally incredible achievement in making SpaceX the world’s most important company.
It was these improbable victories that convinced many Tesla investors and fans that Musk was no ordinary entrepreneur and that his companies were on a mission committed to ending the world’s dependence on oil and even colonizing Mars. Tesla’s growth and expanding lineup of electric vehicles has pushed the company’s valuation and price-to-earnings ratio into the stratosphere and beyond that of traditional automakers (more than 1,300 times earnings). Currently, it trades back to around 51 times earnings, while General Motors and Ford have price-to-earnings ratios of around six times earnings. Tesla remains the world’s most valuable automaker at $530 billion, up from $1 trillion in October 2021.
However, Musk’s biographer did not foresee his failures. Tesla’s acquisition of Musk’s SolarCity on the eve of the solar company’s potential bankruptcy; His failure to transform the science fiction-inspired Hyperloop concept into anything more than single-lane car tunnels to ferry tourists under the Las Vegas Convention Center at low speeds. His inexplicable tweets about taking Tesla private in 2018 and his reckless pronouncements against the Covid-19 lockdown at the height of the pandemic in 2020 didn’t help his reputation either. Likewise, the decision to locate Tesla’s first European factory, Giga Berlin, in a region of Germany plagued by chronic water shortages that limited the factory’s production capacity by billions of dollars seems ill-advised in retrospect. Plus, his latest plea for Optimus humanoid robots to one day work in Tesla factories seems unrealistic, to say the least.
Even now, his Twitter woes aren’t helping.
“This is a potential brand for Tesla. This is a hook for Musk and Twitter,” Dan Ives, a financial analyst at Wedbush Securities, told Forbes. “If he can cut 70% of Twitter’s workforce, keep advertisers and turn things around, his reputation as a turnaround genius will only get stronger. However, public relations issues surrounding Twitter and Musk’s handling of the situation are currently tarnishing his and Tesla’s brand. It is clearly an extreme in action. »
Tesla, which made Musk the world’s richest man, has seen its stock fall 26% since Oct. 28, when the CEO of electric cars and privately held aerospace giant SpaceX completed its $44 billion purchase of Twitter. This year it has decreased by about 58%. By comparison, since Oct. 28, GM is up 1% and Ford is up about 6%, though shares of both automakers are down about a third this year.
Twitter isn’t the only source of Tesla stock’s recent weakness. The automaker is particularly dependent on China for much of its profitability, and as analyst Jeffrey Osborne wrote in a recent research note, “Weak macro data in China is a concern for Tesla.” In order to stimulate local demand, he lowered prices in this country.
Investors are aware of these weaknesses. Hedge funds, for example, are “moving to a negative bias on Tesla stock,” Osborne said, citing conversations with financial officials. They are “increasingly concerned that CEO Elon Musk is losing focus with his acquisition of Twitter,” he said.
Musk has set a bold goal for Tesla to increase sales to 20 million vehicles per year by 2030. That seems like a tall order for a company that has yet to sell 2 million cars a year and represents twice the annual volume of the global giants. Like Toyota and Volkswagen. There’s no doubt that Tesla’s sales will continue to grow, although its inability to offer an affordable electric car priced around $30,000 is a limiting factor. According to Kelley Blue Book, the average selling price of a Tesla in the United States is currently $67,800.
Scott Galloway said, “This is a person who shows a complete lack of grace, who has no protector around him and who sees his wealth cut in half.”
Interestingly, according to Kelley Blue Book traffic, in the third quarter of 2022, the interest of US consumers to buy Tesla cars has also decreased. According to the auto retailer website, “buyer interest in Tesla has dropped by a quarter.” “Tesla fell from fifth to sixth in the ranking of the most searched luxury brands, with 12% of all luxury buyers considering Tesla – down 3 percentage points from the second quarter of 2022 and the biggest loss during the quarter in particular. luxury brand. »
This decline in consumer interest may be temporary and may improve later in the year. But it may reflect the reality that General Motors, Ford, Hyundai, Kia, Audi, BMW, Mercedes-Benz, Rivian, Lucid and more are bringing new electric vehicles to market that directly compete with Tesla, and in some cases, are attractive. , offer better features or prices.
It also makes sense to think that Tesla’s brand is at real risk as its public image becomes less positive due to Musk’s handling of Twitter, as well as his willingness to voice partisan political views.
“This is a person who exhibits a complete lack of grace, has no protectors around, and is going to see his wealth cut in half,” said Scott Galloway, a marketing professor at New York University’s Stern School and podcaster. Business, in a recent interview with CNN.
Article translated from Forbes USA – Author: Alan Ohnsman
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