The electric car company is more valuable than its competitors because of investors’ faith in Elon Musk’s vision, but his ownership of Twitter and his increasingly erratic behavior are eroding it.
Massive job cuts, employee departures, and advertiser flight marked the first month of Elon Musk’s takeover of Twitter. Whether a 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 shares of the electric car maker plummeting, observers are questioning Musk’s near-legendary status as the world’s pre-eminent technology entrepreneur.
Everyone asks: does he know what to do? says Olaf Sakers, general partner at RedBlue Capital, which invests in mobility startups. “I think a lot of people are really starting to question that. 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 fun. But Marky’s response confirmed why it wasn’t the wisest move. “One of your companies is subject to an FTC approval decree. NHTSA is investigating another for killing people,” he tweeted. “Correct your undertakings. or Congress. »
This contrasts starkly with the time when author Ashlee Vance said Musk’s “immediate drive to tackle impossible things made him a Silicon Valley deity” in her 2017 book, Elon Musk: Tesla, SpaceX, and the Search for a Fantastic Future. In it, he celebrates Musk’s remarkable feat of keeping Tesla alive to spark an electric-vehicle revolution that has since spread across the global auto industry, and his equally implausible achievement of making SpaceX the most important company in the world. deprived of missiles in the world.
It was these unexpected victories 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 propelled the company’s valuation and price-earnings ratio into the stratosphere and far beyond those of traditional automakers (more than 1,300 times earnings), long before it became consistently profitable. Right now, earnings are down to about 51 times earnings, while GM’s and Ford’s earnings ratios are about six times earnings. Tesla remains the world’s most valuable automaker at $530 billion, up from more than $1 trillion in October 2021.
However, Musk’s biographer did not anticipate his failures. Tesla’s shale 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 car tunnels transporting tourists under the Las Vegas Convention Center at low speeds. His inexplicable tweets about privatizing Tesla in 2018 and his thoughtless threats against a Covid-19 shutdown 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 a region of Germany subject to long-term water shortages that threaten to limit the plant’s production capacity by billions of dollars, in retrospect seems misguided. Moreover, his latest plea for the humanoid Optimus robots that will one day work in Tesla factories seems, at the very least, unrealistic.
And now his Twitter troubles aren’t helping matters.
“This is a potential brand that undercuts Tesla. It’s a fork of Musk and Twitter,” Dan Ives, financial analyst at Wedbush Securities, told Forbes. “If he can cut 70% of Twitter’s workforce, retain advertisers and set things right, his reputation will be boosted.” as an evolving genius. However, PR issues around Twitter and Musk’s handling of the situation are tainting his brand for now as well as Tesla. It’s a definite load of work. »
Tesla, which made Musk the richest person in the world, has seen its market capitalization decline 26% since October 28, when the CEO of the world leader in electric cars and private space giant SpaceX said he had completed the $44 billion purchase of Twitter. It’s down 58% this year. By comparison, General Motors is up 1% since Oct. 28 and Ford has gained about 6%, though 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 in particular relies on China for much of its profitability, and as analyst Jeffrey Osborne wrote in a recent research note, “weak macro data in China raises concerns in Tesla,” which has cut its prices in that country to stimulate domestic demand.
Investors notice these weaknesses. For example, Osborne said, citing conversations with financial officials, that hedge funds “seem to be turning negative on Tesla shares.” He added that they are “increasingly concerned about CEO Elon Musk losing focus with his acquisition of Twitter.”
Musk has set an audacious goal for Tesla to increase sales to 20 million vehicles per year by 2030. That seems like a stretch for a company that has not yet sold 2 million vehicles per year — twice the annual volume of global giants like Toyota and Volkswagen. There’s no doubt that Tesla sales will continue to grow, though its inability to offer an affordable electric car, 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 Kelley Blue Book.
Scott Galloway declared: “Here is one who has shown a complete lack of grace, has no guarantees about him, and is likely to see his fortune cut in half.”
Intriguingly, American consumer interest in buying Tesla cars also declined in the third quarter of 2022, according to Kelley Blue Book, the first such decline for the brand. According to the auto retailer’s website, “Buyer interest in Tesla decreased quarter-on-quarter.” Tesla fell from fifth to sixth in the ranking of the most searched luxury brands, with 12% of all luxury buyers considering buying a Tesla — down 3 percentage points from the second quarter of 2022, and notably the biggest quarterly loss in the past year. luxury brand period. »
This decline in consumer interest may be temporary and improve towards the end of the year. But it may reflect the fact that companies like General Motors, Ford, Hyundai, Kia, Audi, BMW, Mercedes-Benz, Rivian, Lucid, and others are bringing compelling new electric cars to market that directly rival Tesla—and, in some cases, offer features or pricing. better.
It’s also reasonable to believe that as Musk’s public image becomes less positive due to his engagement with Twitter, as well as his willingness to express partisan political views, the Tesla brand is in real danger.
“This is an individual who has shown a complete lack of grace, has no guardrails around him, and would likely see his fortune cut in half,” said Scott Galloway, broadcast editor and professor of marketing at NYU Stern College. Business, in a recent interview on CNN.
Translated article from the American magazine Forbes – Author: Alan Unsman
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