(BFM Bourse) – The action of the car manufacturer specializing in electrics lost 8% on Tuesday, while research departments are constantly reviewing their opinion on the title, worrying about the dispersion of Elon Musk at Twitter. Since the takeover was completed, the stock has lost around 40%.
Is there still a pilot on board Tesla? The market seems to doubt it more and more. Not a day goes by that Elon Musk, co-founder and current CEO of the automaker, doesn’t make headlines with some controversial new idea for Twitter.
The South African businessman recently “lost” a survey in which he asked if he should remain at the head of the social network, which he completed the acquisition at the end of October for 44 billion dollars.
Tuesday evening, Elon Musk assured that he would leave the general management of Twitter as soon as he found someone sufficiently “crazy” to replace him. This a few days after having suspended the accounts of journalists or even having announced the banning of publications containing links to other social networks.
While Elon Musk seems focused on Twitter, Tesla stock is surely and not so slowly continuing its stock market agony.
Tuesday the title has thus dropped 8%, to 139.07 dollars. Since the end of October and the finalization of the takeover of Twitter, the action has lost 40%, when the S&P 500 has only fallen by 2%. Going back to April, at the start of the soap opera of the acquisition of the social network by Elon Musk, the plunge exceeds 60%.
Market fears are numerous. One of them remains that Musk continues selling Tesla shares to relieve the finances of the heavily indebted social network. According to Bloomberg, Twitter currently has to pay $1.2 billion in annual interest.
Last week, the entrepreneur sold another $3.6 billion worth of Tesla shares, bringing the total since April to more than $22.5 billion. By November Musk had already sold around $4 billion. “Musk’s continued selling after repeatedly assuring he’s finished dumping Tesla shares reflects mounting pressure on Twitter’s finances,” Bloomberg said.
Musk’s (supposed) lack of involvement at Tesla is also worrying. Ross Gerber, director and founder of the investment company Gerber Kawasaki, allowed himself a spade on Twitter. Known for his confidence in Tesla, the investor said the automaker’s share price reflected the fact that he had “no chief executive” at the automaker. He also called on the group to communicate a succession plan for Elon Musk and to establish an agreement with the billionaire which would make it possible to better know his intentions regarding his stake in Tesla, which currently stands at around 13%. Which obviously did not please the billionaire who offered Ross Gerber to go back to “read” his old finance manual.
A “damaged” trust
Except that Ross Gerber is obviously not the only investor to be concerned about the lack of leadership at Tesla. Bloomberg had, last month, relayed the dissatisfaction of a shareholder of the automaker, Trevor Goodwin, who had almost completely sold his position on Tesla, castigating the mistakes of Elon Musk with Twitter. “It’s almost as if he had abandoned us in favor of his new mission,” he lamented.
Quoted by Reuters, Daiwa Capital Markets on Tuesday lowered its price target on Tesla to $177 from $240 previously, citing “a higher risk profile due to Twitter distraction”. Other research firms reduced their target on the stock on Tuesday, including Mizhuo and Evercore ISI.
On Monday, the Oppenheimer bank downgraded its advice on Tesla from “outperformance” to “performance”. Quoted by CNN, the research office judged that Elon Musk’s actions at Twitter, in particular his decision to suspend journalist accounts, had “seriously damaged” investor confidence in Tesla.
“We believe that banning journalists without [fondements] defensible arguments or without clear communication in an environment where many people believe free speech is in jeopardy “is too strong a decision” for a majority of consumers to continue to support Elon Musk/Tesla, especially those ideologically aligned with the mitigation of climate change”, developed Oppenheimer. The design office also considered Elon Musk “increasingly isolated”.
The “Twitter Circus”
Since his takeover of the social network, the businessman has taken power at Twitter, appointing himself general manager, laying off many employees and making a whole series of sometimes dubious strategic decisions. Musk’s brutal choices have thus exposed a violent corporate culture that could tarnish Tesla’s image.
According to a survey conducted in late November by Morgan Stanley, three-quarters of institutional investors polled by the bank believed that the situation at Twitter had contributed significantly to the recent drop in Tesla shares.
Elon Musk’s action at Twitter “could affect consumer confidence in Tesla”, judge Morgan Stanley. The American bank also fears that certain commercial partners of the manufacturer will reduce their collaboration, so as not to see their reputation indirectly associated with the controversies at Twitter.
“Musk has succeeded where the ‘bears’ [les investisseurs tablant sur une baisse, NDLR] have failed for years: breaking Tesla stock,” Wedbush analyst Daniel Ives lamented in November, as quoted by Reuters. “The Twitter circus is slowly starting to impact the value of the hitherto pristine Tesla brand,” he lamented.
Still, the entire fall in Tesla stock is not due solely to the Twitter soap opera. Rising interest rates are weighing on the valuations of technology groups and fueling fears about demand from auto buyers, as financial conditions tighten. The group’s prospects in China, where Tesla has its most important “gigafactory”, also worry the market. The group recently had to agree to significant price reductions in this country in the face of increasingly fierce competition from local players.
Julien Marion – ©2023 BFM Bourse