In a bad year for stocks, Tesla’s 65 percent drop in share price is notable for the size of its evaporated wealth and the unorthodox behavior of its CEO, Elon Musk.
Tesla’s share price collapse wiped out approximately $672 billion in market value. And Mr. Musk, once hailed as a genius who remade the auto industry, seems increasingly distracted by his takeover of Twitter and is using the social network to vent his frustrations. He offended one of his critics this week by describing that he had “tiny testicles.”
The spectacle has left investors and analysts speechless. And many are asking what will happen to the stock, the company and Mr. Musk in 2023. The answer largely depends on Mr. Musk and Tesla’s board of directors.
Will he turn his attention back to Tesla and its myriad challenges? Or will he stay camped on Twitter? Will Mr. Musk sell more Tesla stock to keep Twitter afloat after spending $44 billion to buy that company despite promising not to? Will the Cybertruck, Tesla’s first new passenger car in three years, finally be on sale? And, perhaps most importantly, will the Tesla board do anything to rein in Mr. Musk?
In a deteriorating economy, these uncertainties have forced investors to fundamentally reevaluate Tesla’s prospects. It remains the most valuable auto company and the only major automaker considered a growth stock. But investors are no longer convinced that Tesla can dominate the auto industry the way Apple dominates smartphones or Amazon rules online retail.
“Tesla’s promise was that at some point all the cars in the world would be electric vehicles, and Tesla was going to be a big part of that,” said Efraim Benmelech, a professor of finance at Northwestern University’s Kellogg School of Management. .
But, he added, investors have reassessed that view and now seem to think that traditional automakers like Ford Motor and General Motors could pose a credible competitive challenge to Tesla.
“Some of those companies have been around for 100 years,” said Mr. Benmelech, who uses Tesla as a case study in his classes. “They have good engineers, good management. You should not underestimate the role that competition plays.”
Mr. Benmelech points out that Tesla is doing quite well by most standard measures. The company has deleveraged and has some of the highest profit margins in the industry. It reported net income of $8.9 billion for the first nine months of 2022, more than General Motors earned.
There were signs this week that the share price was stabilizing. Shares rose to $123 on Friday from a two-year low of $109 on Wednesday.
Because many investors compare Tesla to tech companies, it has to meet higher expectations than more established automakers. Therefore, it is still worth about $389 billion, compared to about $226 billion for Toyota.
In retrospect, it’s clear Tesla’s $1 trillion stock valuation at the start of the year was overstated, analysts say. Part of the spectacular rise in Tesla’s stock price in 2020 and 2021 was likely caused by investors hoping the company would make them as wealthy as others who bought stock in the company in 2017, when it was worth $40 billion ( and according to some skeptics at the time to be hugely expensive).
“Sometimes it seemed that Tesla could make someone a millionaire in a short period of time,” said William Goetzmann, a professor of finance at the Yale School of Management who studies asset prices.
That optimism became harder to sustain when a series of problems arose in 2022. Temporary closures at the Tesla factory in Shanghai due to rising Covid cases, along with fierce competition from BYD and other Chinese automakers, cast doubt on Tesla’s chances of dominating electric car sales. in that country, the world’s largest market for cars and electric cars. The Shanghai factory is Tesla’s largest, accounting for 40 percent of total production.
Tesla is expected to release its fourth-quarter and full-year sales figures in the coming days. Wall Street analysts expect the company to have delivered 420,000 cars in the last three months of the year, up from 343,000 in the third quarter. That would be impressive, but not enough for the company to meet its goal of increasing sales by 50 percent for the full year.
Rising interest rates have been a problem for all automakers, and especially for companies, such as Tesla, whose vehicles typically sell for more than $50,000. Higher rates mean higher monthly payments that many buyers can’t afford.
Even if rate hikes by the Federal Reserve and other central banks were beyond Musk’s control, analysts criticized him for not paying enough attention to Tesla at a critical time.
Daniel Ives, an analyst at Wedbush Securities who has long been optimistic about Tesla’s prospects, likely spoke for many investors when he suggested 10 things Mr. Musk could do to revive the company’s share price. High on the list: Name a new CEO of Twitter and “turn the focus back to Tesla, not Twitter.”
Investors and analysts are divided on the extent to which Mr. Musk’s comments on Twitter have tarnished Tesla’s image among the left-wing consumers most likely to buy an electric car. Even disregarding those concerns, Mr. Musk’s behavior has highlighted the lack of checks and balances at Tesla. The company’s board of directors, which includes the CEO’s brother Kimbal Musk, has largely remained silent.
When several executives testified in a Delaware court last month in a lawsuit challenging Mr. Musk’s massive compensation package, they said they weren’t concerned about how much time the executive was spending at Twitter. “He will do what he needs to to get the results,” Robyn Denholm, Tesla’s chairman, said on the witness stand.
Tesla, Mr. Musk, Ms. Denholm and Kimbal Musk did not respond to requests for comment.
Len Sherman, an adjunct professor at Columbia Business School who previously served as a consultant to the auto industry, said Tesla’s board of directors was extremely deferential to Mr. Musk.
“You have no effective governance to curb his worst impulses,” said Mr. Sherman. “He runs his show the way he wants to run it, and no one can stop him.”
Mr. Sherman, who drives a Tesla and previously owned Tesla stock, is among those who are beginning to question whether Mr. Musk is the right person to lead the company as it matures into a carmaker. He noted that there had been no recent mention of plans to build a $25,000 car that would attract more customers and boost sales.
“That’s not how you go from where Tesla is now to become the next GM or Volkswagen,” said Mr. Sherman. “For all his admirable qualities, being the only human on the planet who accomplished what he did does not make him ideal for the kind of leader Tesla needs in the future.”
With its visionary leader seemingly disconnected, Tesla is being scrutinized by more conventional metrics like sales and profits and less by dreams of world domination.
“Now that the cars are ubiquitous,” said Yale’s Mr. Goetzmann, “it had to make a transition at some point in its history from being based not on long-term prospects, but on sales numbers and things like that.”
