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Elon Musk's Twitter Obsession Isn't the Main Reason for Tesla's Stock Drop

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New York
CNN

A popular misconception has emerged about Elon Musk and Tesla: The mega-billionaire’s love affair with Twitter is the main reason why Tesla shares have lost so much value this year. But Tesla’s strong stock selloff this week proved that Musk’s automaker’s problems go far beyond Twitter.

Even as Musk signals he may relinquish his title as CEO of Twitter, investors fear Tesla’s sales and earnings outlook will deteriorate. Sign of weakening demand: Tesla announced a rare sale. The company has offered two rebates to buyers who take delivery of a vehicle before the end of the year, initially offering a rebate of $3,750 earlier this month. Tesla then doubled that discount to $7,500 on Thursday.

“Tesla is clearly starting to see cracks in demand in China and the United States at a time when competition from electric vehicles is increasing across the board,” said Dan Ives, technology analyst at Wedbush Securities and a Tesla bull who has cut its price target for the stock on Friday. .from $250 to $175. “The price cuts that Tesla enacted were the straw that broke the camel’s back on the stock.”

Another reason why Tesla stock is crashing: The US economy could tip into recession next year, which would affect car sales. Musk said in a call to Twitter Spaces on Thursday that he expects the economy to see a “serious reduction” in 2023.

“I think there is going to be macro drama that is higher than people currently think,” he said, according to Reuters, adding that homes and cars will be “disproportionately affected” by economic conditions.

Part of the problem with Tesla’s stock price is that critics wonder if it was ever worth the trillion-dollar valuation it had at the start of the year. At its peak, Tesla was worth more than the world’s 12 largest automakers combined, despite having a fraction of the sales of one of them. Today it is worth $399 billion.

“It got a short-term lead,” said Gene Munster of Loup Ventures, another Tesla fan. “I still believe it could be a much bigger business. I think he will revisit those kinds of numbers. But it could take a long, long time to get there.

Tesla’s growth prospects – a sales growth target of 50% per year – have contributed to this valuation. He conceded in October that he will miss that sales target for this year.

The stock’s rise to dizzying heights – up 743% in 2020 alone – was driven by Musk’s reputation as a genius who would disrupt the massive global auto industry.

“Tesla was seen as a disruptive tech company, not an automaker, and a lot of that bounty is tied to Musk,” Ives said.

Tesla critics said much of its exorbitant valuation was based on promises Musk made about future products, many of which came years after they were originally promised.

A prime example is the Cybertruck, the Tesla pickup truck, first unveiled three years ago with promises that production would begin in 2021. It is now expected to begin production next year, with a ramp-up of production in 2024, which will put it years behind schedule. Other electric pickup offerings come from Ford and upstart electric vehicle maker Rivian, both of which have electric pickups available for purchase today. It could also follow General Motors’ planned electric pickup offerings.

“Elon Musk has a pathological problem with the truth,” said Gordon Johnson, one of Tesla’s biggest critics among analysts. “When people say he’s a genius and an innovator, it’s based on all his promises that he never keeps.”

Johnson said Tesla shares will see a much steeper drop once they start pricing like other automakers rather than on promises. He said that for Tesla to meet its growth targets, it needs to build new factories almost every year, but new factories in Germany and Texas that opened in the spring are still not operating at full capacity. And he said his factory in China had to cut production due to weak market sales in the face of Covid restrictions.

“Demand in the United States has collapsed,” he said. “Two months ago, your wait time was two or three months. Now you can get one immediately. They will build more cars than they sell for a third consecutive quarter. This is the definition of excess capacity.

Tesla is still by far the largest maker of electric vehicles in the world, although that title is challenged in some key markets, by Volkswagen in Europe and BYD in China. And more competition comes from established automakers like Ford and GM.

That’s not to say Twitter hasn’t played a role in Tesla’s stock price plunge this year: Tesla shares have lost 66% of their value since Musk’s interest in Twitter came to light. for the first time in April, down 45% since closing the deal in late October.

Investors were disappointed that Musk appeared to be paying for so much of his $44 billion Twitter buy by selling Tesla shares. Musk, Tesla’s largest shareholder, has sold $23 billion worth of Tesla stock since his interest in Twitter became public in April.

During Thursday’s Twitter Spaces call, Musk promised he was done selling Tesla stock until at least 2024, if not later. But it didn’t live up to a precedent promised in april that he had finished selling Tesla shares, selling $14.4 billion of those shares since then.

“It’s been a Pinocchio situation for Musk saying he’s done selling stocks. Investors want to see him walk, not just talk,” Ives said.

Another Twitter factor: Musk has named himself CEO of Twitter, the third major company he leads, along with Tesla and SpaceX. So many people assumed that Musk’s loss of focus on Tesla scared off his former Wall Street fans.

But this week started with Musk leading a survey — on Twitter of course — asking him if he should give up the CEO title to his social media toy. He promised he would abide by the result, and 57.5% of those who voted said they wanted him gone.

This departure may take a while – Musk tweeted that he would quit “as soon as I find someone dumb enough to take the job!” And the same tweet, he warned that while he was giving up the CEO title on Twitter, he wasn’t walking away entirely, saying he planned to “just lead the software and server teams” after finding a new “fool” to be CEO.

The poll results late Sunday were enough to boost Tesla shares in early trading Monday, but shares ended the day down slightly and have lost significantly more ground each day since. Tesla shares fell 9% on Thursday and ended the week down 18% after falling another 2% on Friday.

And then there’s the question of just how much damage the Twitter debacle has done to the Tesla brand. Musk has fired thousands of employees, banned journalists while allowing Donald Trump and other previously banned accounts to come back online, called for the prosecution of Dr. Anthony Fauci, embraced conspiracy theories and made anti-trans statements during his short tenure as CEO.

That may have endeared it to some, but irritated other potential buyers, including liberals who might be willing to pay a premium for a more environmentally friendly vehicle.

“I think it was measurable damage,” said Munster, who thinks advertising during his time on Twitter cost Tesla 5% of its sales.

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