The electric car company is more valuable than its rivals due to investors’ confidence in Elon Musk’s vision, but his ownership of Twitter and his increasingly erratic behavior are eroding it.
Massive job cuts, employee departures and the flight of advertisers marked the first month of Elon Musk’s takeover of Twitter. Whether his sledgehammer restructuring saves or kills Twitter, this misguided purchase has an undeniable impact on Musk’s most important business and the source of most of his wealth: Tesla. With the electric car maker’s shares plummeting, observers are questioning Musk’s near-mythical status as the world’s preeminent tech entrepreneur.
“Everyone asks: Does he know what he’s doing? says Olaf Sakkers, a general partner at RedBlue Capital, which invests in mobility start-ups. “I think a lot of people are starting to really doubt that. And his image is likely to be tarnished 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, apparently for his own amusement. But Mr Markey’s response underscored why it wasn’t the wisest move. “One of your companies is subject to an FTC consent decree. NHTSA is investigating another for killing people. And you spend your time looking for the conflict online,” he tweeted. “Correct your undertakings. Or Congress will. »
This contrasts starkly with the time when writer Ashlee Vance raved that “Musk’s instant drive to tackle impossible things made him a Silicon Valley deity” in her 2017 book, Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future. In it, he celebrated Musk’s remarkable achievement in keeping Tesla alive to spark an electric car revolution that has since spread across the global auto industry, and his equally implausible achievement in making SpaceX the world’s most important company. deprived of rockets in the world.
It was these unlikely triumphs that convinced many Tesla investors and fans that Musk was no ordinary entrepreneur and that his companies were mission-driven, committed to ending the world’s dependence on oil and even colonizing Mars. . Tesla’s growth and expansion of its electric vehicle lineup has pushed the company’s valuation and price-to-earnings ratio into the stratosphere and far beyond those of traditional automakers (more than 1,300 times profits), long before it became consistently profitable. Right now, it’s back down to around 51 times earnings, while General Motors’ and Ford’s price-earnings ratios are around six times earnings. Tesla remains the world’s most valuable automaker at $530 billion, up from over $1 trillion in October 2021.
However, Musk’s biographer did not foresee his failures. Tesla’s rocky purchase of Musk-owned SolarCity ahead of the solar company’s potential bankruptcy; its failure to turn the sci-fi-inspired Hyperloop concept into anything other than single-lane automobile tunnels to ferry tourists under the Las Vegas Convention Center at low speeds. His inexplicable tweets about the privatization of Tesla in 2018 and his thoughtless ramblings against the Covid-19 lockdown at the height of the pandemic in 2020 haven’t helped his reputation either. Likewise, his decision to locate Tesla’s first European factory, Giga Berlin, in an area of Germany exposed to a long-lasting water shortage that risks limiting the factory’s production capacity by billions of dollars, retrospectively seems misguided. Moreover, his recent plea for Optimus humanoid robots that will one day work in Tesla factories seems, at the very least, unrealistic.
And now his problems on Twitter aren’t helping matters.
“This is a potential brand undermining for Tesla. It’s a fork for Musk and Twitter,” Dan Ives, financial analyst at Wedbush Securities, told Forbes. “If he manages to cut 70% of Twitter’s workforce, retain advertisers and turn things around, his reputation as a turnaround genius will be further bolstered. However, the public relations issues around Twitter and Musk’s handling of the situation are tainting his brand at the moment and Tesla’s as well. It is an obvious overhang on the action. »
Tesla, which made Musk the richest person in the world, has seen its stock market value plummet 26% since October 28, when the CEO of the world leader in electric vehicles and private aerospace giant SpaceX said completed the purchase of Twitter for $44 billion. It is down about 58% this year. By comparison, GM is up 1% since Oct. 28 and Ford has gained about 6%, although shares of both automakers are down about a third this year.
Twitter isn’t the only source of recent weakness in Tesla shares. The automaker is particularly dependent on China for much of its profitability and, as analyst Jeffrey Osborne wrote in a recent research note, “weakening macro data in China raises concerns at Tesla.” , which has lowered its prices in this country to stimulate local demand.
Investors are taking note of these weaknesses. For example, hedge funds “appear to be shifting to a negative bias on Tesla stocks,” Osborne said, citing conversations with finance officials. They are “increasingly concerned about CEO Elon Musk losing focus with his acquisition of Twitter,” he added.
Musk has set a bold goal for Tesla to boost sales to 20 million vehicles a year by 2030. That seems like a stretch for a company that has yet to sell 2 million vehicles a year — and which represents the double the annual volume of 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 vehicle, priced around $30,000, is a limiting factor. Currently, the average selling price of a Tesla is $67,800 in the United States, according to the Kelley Blue Book.
“This is an individual who has shown a complete lack of grace, who has no safeguards around him and who will see his wealth probably reduced by half,” announced Scott Galloway.
Curiously, U.S. consumer interest in buying Tesla vehicles also fell in the third quarter of 2022, according to Kelley Blue Book traffic, the first such drop for the brand. “Buyer interest in Tesla has dropped quarter over quarter,” according to the auto retail site. “Tesla fell from fifth to sixth place in the ranking of most searched luxury brands, with 12% of all luxury buyers considering a Tesla – down 3 percentage points from the second quarter of 2022 and notably the biggest quarter-over-quarter loss for a luxury brand. »
This decline in consumer interest could be temporary and improve at the end of the year. But it may reflect the reality that companies like General Motors, Ford, Hyundai, Kia, Audi, BMW, Mercedes-Benz, Rivian, Lucid, and more are bringing compelling new electric vehicles to market that directly compete with Tesla — and in some cases, offer better features or prices.
It’s also reasonable to think that as Musk’s public image becomes less positive due to his handling of Twitter, as well as his willingness to voice partisan political views, the Tesla brand is at real risk.
“This is an individual who has shown a complete lack of grace, who has no guardrails around him and who is going to see his wealth probably cut in half,” said Scott Galloway, podcaster and professor of marketing at New York University’s Stern School of Business, in a recent interview on CNN.
Article translated from Forbes US – Author: Alan Ohnsman
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