Elon Musk’s obsession with Twitter isn’t the main reason behind Tesla stock’s plunge

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A common misconception has emerged about Elon Musk and Tesla: The mega-billionaire’s love affair with Twitter is the main reason Tesla stock has plummeted in value this year. But Tesla’s steep stock sale this week proved that the problems at Musk’s automaker go well beyond Twitter.

Even as Musk signaled he could give up his CEO title on Twitter, investors worried that the prospects for Tesla’s sales and earnings were deteriorating. A sign of weakening demand: Tesla has announced a rare sale. The company offered two rebates for buyers who take delivery of a vehicle before the end of the year, initially offering a $3,750 rebate earlier this month. Tesla then doubled that discount to $7,500 on Thursday.

“Tesla is clearly seeing demand slumps in China and the US at a time when electric vehicle competition is ramping up across the board,” said Dan Ives, a tech analyst at Wedbush Securities and a Tesla bull, who set his price target on the stock on April 1, 2020 Friday has lowered it from $250 to $175. “Tesla’s price cuts were the straw that broke the camel’s back for the stock.”

Another reason why Tesla stock is falling: The US economy could slide into recession next year, hurting auto sales. Musk said in a Twitter Spaces call Thursday that he expects the economy to be in a “serious recession” in 2023.

“I think there’s going to be macro drama that’s bigger than people think right now,” 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 question whether it was ever worth the trillion-dollar valuation it was at the start of the year. At its peak, Tesla was worth more than the 12 largest automakers in the world combined, despite having a fraction of the sales of each of them. Today it is worth $399 billion.

“It outperformed in the short term,” said Loup Ventures’ Gene Munster, another Tesla fan. “I still believe this can be a much bigger company. I think it will see those kind of numbers again. But it could be a long, long time before we get there.”

Tesla’s growth prospects — a target of 50% revenue growth annually — contributed to this valuation. It admitted in October that it will miss that sales target for this year.

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

“Tesla has been viewed as a disruptive technology company, not an automaker, and a large part of that bounty is associated with Musk,” Ives said.

Tesla critics have said much of its sky-high rating is based on promises Musk made about future products that came many years after their original promise.

A prime example is the Cybertruck, Tesla’s pickup truck that was first unveiled three years ago with promises that production would begin in 2021. Now it’s slated to start production next year, with a production ramp-up in 2024, putting years behind other electric pickup offerings from Ford and up-and-coming EV maker Rivian, both of which have electric pickups for sale today. It could also follow proposed electric pickup offerings from General Motors.

“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 delivers.”

Johnson said Tesla stock will face a much sharper decline once it starts being priced like other automakers, rather than what they’re promising. He said Tesla needs to build new plants almost every year to meet its growth goals, but that new factories in Germany and Texas that opened in the spring are still not operating at full capacity. And he said his plant in China had to scale back production due to weak sales in the market amid Covid restrictions.

“Demand in the US has collapsed,” he said. “Two months ago your waiting time was two or three months. Now you can get one right away. They will build more cars than sell for a third straight quarter. It is the definition of overcapacity.”

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

That’s not to say Twitter hasn’t played a role in Tesla’s stock price decline this year: Tesla shares have lost 66% of their value since Musk’s interest in Twitter was first disclosed in April, with a 45% drop since he late in the deal completed October.

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

On Thursday’s Twitter Spaces call, Musk promised that he would be done selling Tesla stock until at least 2024, if not beyond. But he has not fulfilled a past Promise in April that he was done selling Tesla stock and has since sold $14.4 billion of those shares.

“It was a Pinocchio situation for Musk when he says he’s done selling stock. Investors want him to walk the path, not just talk,” Ives said.

Another Twitter factor: Musk proclaimed himself CEO of Twitter, the third major company he runs alongside Tesla and SpaceX. So many people assumed that Musk’s loss of focus on Tesla spooked his former Wall Street fans.

But this week started with Musk running one opinion poll – on Twitter, of course – whether he should give up the CEO title on his social media toy. He vowed to stand by the result and 57.5% of voters said they wanted him gone.

This departure may take a while – Musk tweeted that he will resign “as soon as I find someone stupid enough to take the job!” And in the same tweet, he warned that even if he relinquishes the CEO title on Twitter, he will , won’t walk away entirely, saying he plans to “just run the software and server teams” after finding a new “fool” as CEO.

Poll results late Sunday were enough to lift Tesla shares in early Monday trading, but shares ended the day slightly lower 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 how much damage the Twitter debacle has done to the Tesla brand. Musk has laid off thousands of employees in his brief tenure as CEO, banned journalists while allowing Donald Trump and other previously banned accounts online, prosecuted Dr. Demanded Anthony Fauci, embraced conspiracy theories and made anti-trans statements.

It may have endeared it to some but angered other potential buyers, including liberals who might be willing to pay a premium for a greener vehicle.

“I think there was measurable damage,” said Munster, who believes the ad cost Tesla 5% of its revenue during his tenure at Twitter.

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