With all that goes on with Elon Musk, it’s easy to forget it’s Tesla that finances the Musk machine: His purchase of what was Twitter (now renamed by Musk as X) that enhances the reach of his opinions; his ability to send rockets into space, and whatever else he might dream up in the next five minutes
Tesla, the world’s largest electric-car maker (still holding a slight lead over China’s BYD), is the reason why Musk — at the least as this column goes to press — is the world’s richest person with a net value above $200 billion.
Notice the qualifier.
Sometime soon, Musk may fall to No 2 or below, overtaken by Bernard Arnault, who runs the LVMH luxury goods empire (he has taken some hits to his wealth these days with a decline in LVMH shares) or possibly Amazon founder Jeff Bezos.
Musk, after all, is Tesla’s CEO and largest shareholder.
The latter is the reason for Musk’s shaky position on the billionaires list.
The corporate has hit a rough patch, and as I identified, his wealth is tied up in the stock.
How rough and whether it’s existential to Musk’s fortune, the way forward for Tesla and its shareholders, has been a matter of intense debate in the market recently.
There are lots of true believers in Musk and Tesla, after all.
And it’s hard not to root for a free-speech guy who replatformed conservatives canceled by the leftists who ran Twitter before his 2022 purchase.
Yet when you’re a betting man (or woman), the anti-Tesla “bear” case looks increasingly appealing.
Tesla’s stock is down 35% over the past month (compared to a 2.5% decline in the S&P).
It crashed Wednesday when Musk himself said the company’s wonky business model faces some significant hurdles.
The corporate’s latest “Cybertruck” isn’t selling. Tesla stays profitable (it wasn’t at all times that way), though it missed on earnings and revenues.
Depending on the analyst, margins are collapsing.
Tesla’s stock is down 17% the past month (compared to a 2.4% decline in the S&P).
It tanked Wednesday when Musk himself said the company’s wonky business model faces some significant hurdles.
The corporate’s latest “Cybertruck” isn’t selling.
Tesla stays profitable (it wasn’t at all times that way), though it missed on earnings and revenues.
Depending on the analyst, margins are collapsing.
It has plans for expansion with a latest plant in Mexico.
However it’s doing all of this in a better rate of interest environment, which implies that with a recession looking very possible in 2024, there shall be less demand for its product.
As Musk put it: “I just can’t emphasize this enough that [for] the overwhelming majority of individuals, buying a automobile is about the monthly payment. And as rates of interest rise, the proportion of that monthly payment that’s interest increases naturally.”
Faking a buyout
We’ve been here before, after all.
Recall Tesla’s dark days back around 2018, when the firm was literally on the verge of bankruptcy.
Shares were tanking, and the short sellers — who generate profits when a stock falls — were having a field day.
Production delays, no profits, and Elon the goal of regulatory probes after he faked a buyout at a large premium, had the market signaling a “Q” after the TSLA stock symbol to denote its imminent Chapter 11 status.
Shares are up nearly 800% since those dark days.
The bulls speak about Tesla’s strong revenues and the fact it may produce cars cheaper than anyone else in the EV market.
But to buy the Tesla “bull” story, you furthermore mght have to suspend some disbelief.
EVs are expensive and still inefficient.
How could they be a sustainable mass market product?
Musk suggested as much Wednesday.
Tesla, he said, is prepared to cut prices to make its EVs more cost-effective to the vast middle class.
Analysts are also starting to notice that Tesla’s EVs, and EVs generally, may not be sustainable in an ESG sense either.
A part of Tesla’s market allure wasn’t that it sells lots of cars, since it doesn’t.
It’s a function of the Environmental Social Governance investment craze, where asset managers gauge stocks on quite a lot of non-financial metrics, including their company’s dedication to sustainability.
EVs may not burn fossil fuels, but mining the chemicals in its batteries is environmentally hazardous, done in slave-labor-like conditions.
Electricity comes from somewhere, most of it not from all those “clean energy” windmills, but from our stressed-out electrical grid.
Plus, ESG is now on a possible death march following commonsense attacks that it led to higher inflation (forcing oil corporations to stop drilling when gas prices remain high).
ESG fund returns are shaky and may’t really compete in a tricky higher-interest-rate market.
Tesla shares could take a haircut as ESG fades from existence.
An excellent greater worry is Tesla’s questionable fundamentals.
Gordon Johnson, the CEO of GLJ Research and a longtime Tesla skeptic, explains that Tesla’s financial metrics, even before the company’s recent contretemps, looked increasingly “fugazy.”
Sales growth has been in decline. Tesla produced 435,000 cars in the third quarter of 2023, from 466,000 in Q2.
Its stock market value of $700 billion is value greater than the next seven largest automakers combined.
Yet, Johnson says, Tesla sold just 3% of the cars those corporations in the aggregate sold over the past yr.
He points out that sales growth has been in decline.
Tesla produced 435,000 cars in the third quarter of 2023, from 466,000 in Q2.
Its stock market value of $664 billion is value greater than the next seven largest automakers combined.
Yet, Johnson says, Tesla sold just 3.9% of the cars those corporations in the aggregate sold over the past yr.
“I don’t want to say Tesla goes out of business, however it’s grossly overvalued,” Johnson tells me.
If that’s the case, Musk’s status as the world’s richest man is grossly overvalued as well.