Tesla’s spectacular and unexpected accident

Tesla short sellers are finally smiling. They made at least $15 billion this year, according to analyst firm S3 Partners, after a big disappointment in previous years. It is the darling of the markets whose market capitalization has lost nearly 65% ​​of its value since the beginning of 2022. It’s a trifle worth $700 billion: more than the value of Toyota, Mercedes Benz, Volkswagen, Stellantis. , General Motors and Ford together…

More than a year after its November 2021 peak, when it topped $380, the electric car pioneer’s share price has literally melted to $125 these days. It would certainly be difficult for him to maintain himself for too long at the stratospheric and irrational level he reached at that time. “But the scale of the fall is still surprising! Jefferies financial analyst Philippe Houchois admits.

After a long period of stagnation around $60 billion, Tesla’s market capitalization rose from the beginning of 2020 and crossed the $1,000 billion mark in October 2021. It just crossed the 400 billion mark.

Eccentricities

The escapades of his boss, who were not in their first miracles, are not in vain. “Tesla’s stock price has never reflected the value of the company, but Elon Musk’s popularity rating,” said Bertrand Rakoto, a consultant at Ducker in Detroit. “However, it has been collapsing since the takeover of Twitter in late October.”

The first steps of the billionaire at the head of the social network were, of course, eventful to say the least. From the hasty firing of half the staff to the deletion of several critical American journalists’ Twitter accounts in mid-December, controversial political positions…

Even Elon Musk, who was chosen as “Person of the Year” by “Time” magazine in 2021 was booed for the first time in mid-December, 18,000 fans of American comedian Dave Chappelle invited him on stage.

Investors are also worried about Elon Musk’s personal investment in Twitter at the expense of the manufacturer. “Give us our CEO back,” Ross Gerber, CEO of investment bank Gerber Kawasaki, a longtime investor in Tesla, said in mid-December. Businessman Leo Koguan, who presented himself as the third individual shareholder of Tesla on the social network, also spoke: “As a fan, I invested in Elon. Of course, I prefer him to stay as CEO, but he gave up on Tesla, “he said. They are not alone.

The billionaire’s sale of large blocks of Tesla shares to finance the purchase of the bluebird also weighed on the price: in total, these sales amounted to 40 billion euros since the beginning of the year, according to Bloomberg, and reduced Elon Musk’s stake in the car industry. Up to 13% solid. It’s not clear that the billionaire’s pledge Thursday evening not to sell securities for the next two years calmed markets: he did the same in April and August.

Autopilot failures

But investors are also beginning to question the company itself. “Thus, Musk’s experiences have led some to examine all that is wrong with Tesla: the poor quality of the cars, the lack of a distributor 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 failures. An ongoing lawsuit in California has prompted Tesla lawyers to argue that the firm failed to properly operate the self-driving car to avoid being charged with fraud. “But Musk himself explained that a large part of Tesla’s valuation is related to Autopilot…” notes Bertrand Rakoto. Ford and Volkswagen throwing in the towel on the autonomous car could also reduce hopes for Tesla, which is valued as a “tech company”.

Finally, some of the fundamentals of Tesla’s model can be questioned. Admittedly, the firm is now extremely profitable (+17.2% operating margin in the third quarter of 2022, a fairly extraordinary level for the sector) and is experiencing spectacular growth (+45% volume in the first nine months). from 2022 to 909,000 units). “And it makes more money than it should,” notes Philippe Houchois.

However, there are a few clouds on the horizon on the demand side, particularly in China. According to Bloomberg, Tesla has just reduced production rates at its Shanghai factory, although capacity is increasing. In China, the United States and even in Europe, price reductions or discounts were recorded – this is a sign that the firm is trying to increase its sales.

The simplicity of the range

Philippe Houchois emphasizes: “It is too early to know whether this slowdown is related to a market phenomenon or specifically to Tesla.” One of the keys to Tesla’s success is the simplicity of its lineup, based on two mass-produced models (Model 3 and Model Y) that allow for significant effects of scale. “But can it last? Would drivers want to share the same car as their neighbors? This is the main question for me for Tesla, especially as the competition increases,” asks Philippe Houchois.

The lack of novelty also affects the price. “Tesla’s acceptance as a leader in everything is diminishing,” said Cowen analyst Jeffrey Osborne, quoted by Bloomberg. “We don’t really see what exciting things they’re going to do next year.” However, there are few analysts to change their views on the title: the average price target, which fell from $313 at the beginning of the year to $255 these days, remains well above the current price.

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