With all that goes on with Elon Musk, it’s easy to forget it’s Tesla that funds 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 subsequent five minutes
Tesla, the world’s largest electric-car maker (still holding a slight lead over China’s BYD), is the explanation why Musk — no less than as this column goes to press — is the world’s richest person with a net price 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, in fact, is Tesla’s CEO and largest shareholder.
The latter is the explanation 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 within the stock.
How rough and whether it’s existential to Musk’s fortune, the longer term of Tesla and its shareholders, has been a matter of intense debate available in the market recently.
There are various true believers in Musk and Tesla, in fact.
And it’s hard to not root for a free-speech guy who replatformed conservatives canceled by the leftists who ran Twitter before his 2022 purchase.
Yet should you’re a betting man (or woman), the anti-Tesla “bear” case looks increasingly appealing.
Tesla’s stock is down 17% the past month (in comparison with a 2.4% decline within the S&P).
It tanked Wednesday when Musk himself said the corporate’s wonky business model faces some significant hurdles.
The corporate’s latest “Cybertruck” isn’t selling.
Tesla stays profitable (it wasn’t all the time 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 will likely 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 automotive is in regards to 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, in fact.
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 earn money 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 indicate its imminent Chapter 11 status.
Shares are up nearly 800% since those dark days.
The bulls discuss Tesla’s strong revenues and the very fact it will probably produce cars cheaper than anyone else within the EV market.
But to purchase the Tesla “bull” story, you furthermore mght need 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 able to cut prices to make its EVs cheaper to the vast middle class.
Analysts are also beginning to notice that Tesla’s EVs, and EVs generally, may not be sustainable in an ESG sense either.
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A part of Tesla’s market allure wasn’t that it sells plenty of cars, since it doesn’t.
It’s a function of the Environmental Social Governance investment craze, where asset managers gauge stocks on a wide range 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 firms to stop drilling when gas prices remain high).
ESG fund returns are shaky and might’t really compete in a troublesome higher-interest-rate market.
Tesla shares could take a haircut as ESG fades from existence.
A fair 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 corporate’s recent contretemps, looked increasingly “fugazy.”
Sales growth has been in decline. Tesla produced 435,000 cars within the third quarter of 2023, from 466,000 in Q2.
Its stock market value of $700 billion is price greater than the subsequent seven largest automakers combined.
Yet, Johnson says, Tesla sold just 3% of the cars those firms in the combination sold over the past 12 months.
He points out that sales growth has been in decline.
Tesla produced 435,000 cars within the third quarter of 2023, from 466,000 in Q2.
Its stock market value of $664 billion is price greater than the subsequent seven largest automakers combined.
Yet, Johnson says, Tesla sold just 3.9% of the cars those firms in the combination sold over the past 12 months.
“I don’t wish to say Tesla goes out of business, but it surely’s grossly overvalued,” Johnson tells me.
If that’s the case, Musk’s status because the world’s richest man is grossly overvalued as well.