The blazing decade favored Tesla and its investors. The world’s most valuable car maker, Tesla, had one of the best-performing stocks (TSLA) of all time.
Investors could always take a leap of faith and be rewarded, that too with a 7000 percent return in the decade.
The EV company’s valuation reached its all-time peak on January 3, 2022, at an incredible $1.2 trillion.
In just 52 weeks, the EV brand’s potential future darkened when Tesla’s market cap dropped by a staggering $600 billion. It is now on the S&P 500’s list of unsatisfactory performances of the year.
How did North America’s top-selling EV brand, backslide into what could be one of its worst years to date?
THE PLUNGE OF TESLA STOCK
On November 29, S&P Global Mobility predicted where Tesla was going wrong.
Although there are several reasons why Tesla’s stock is down 61 percent year-to-date, CEO Elon Musk blames the Federal Reserve profusely for it.
In a reply to a Tesla investor’s tweet holding him responsible for erasing $600 billion of TSLA, Musk wrote that Tesla is executing better than ever and that the real problem was that nobody could control the Fed.
Inflation in the U.S. has surged to a 40-year high of 9.1 percent in June, prompting the Fed to increase interest rates to 4 percent in December.
This attempt to make borrowing expensive is their way of battling inflation because higher rates would drive saving but not spending.
Musk argued that the US Central Bank has hiked the interest rates so high, that it has disgruntled stock market investors.
Tesla is valued as a high-growth stock, primarily based on the value of their future cash flow potential. Considering inflation and high-interest rates, consumer spending is bound to be affected by splurge-spending things like cars, making Tesla bear the brunt.
In simple terms:
As bank savings account interest rates, which are guaranteed, start to approach stock market returns, which are *not* guaranteed, people will increasingly move their money out of stocks into cash, thus causing stocks to drop.
— Elon Musk (@elonmusk) December 20, 2022
Musk warns the Fed to cut the rates immediately as these events are aggressively sailing towards the probability of a severe recession.
MUSK’S DIVERSIONS
On the other hand, major investors and fans have attributed Tesla’s sharp decline to Musk’s attention on his recently acquired Twitter. While Musk considers TSLA’s share price as a buying opportunity, Investor Koguan claims that he will snap up the falling shares.
People’s faith in the EV manufacturer started waning after Musk sent out wrong signals by selling 8 billion dollars of Tesla’s shares most likely to finance the buyout of Twitter.
His rather public display of machinations at Twitter headquarters for extended hours has tremendously affected his core outlook as Tesla’s CEO.
“Push the brakes on being Chief Twit and reverse back to Tesla’s crisis.”
Dozens of Tesla’s software engineers are being redirected to the Twitter headquarters while it struggles. Musk is pressuring employees to learn everything about the platform so he can redesign it. Fearing retaliation, employees are quietly required to consider working at Twitter as a project with no extra compensation.
With Tesla at stake now, has Twitter cost Musk more than just $44 billion?
TESLA’S TRIALS AND TRIBULATIONS:
A confluence of factors can be blamed for Tesla’s struggles as the EV giant now thirsts for year-end sales offering discounts of $7500.
Investors feel it is out of character for Tesla to do so and wonder if the demand for the highly-sought after EV, is wavering.
This discount comes in response to the U.S. Treasury Department’s delay in EV Tax Credit Rules around the sourcing of materials for EV makers.
As per the Inflation Reduction Act, Automakers need to build and source all their critical materials from North America or free trade agreement countries only, to be eligible for the EV Tax Credit of $7500.
This pushes people to buy Tesla next year as the EV maker will qualify for this tax credit starting from January 1, 2023, as most of the materials are sourced from China.
Tesla is also being scrutinized for a probable NHTSA investigation.
While Musk blames the economic conditions of China and Europe for the waning demand, other automobile companies like Ford and Volkswagen have actually seen a rise in share prices since October. (Musk took over Twitter in October)
Tesla dominated the EV Market for years, but now is facing trouble as other competitors flood the greener vehicles market. Ford, General Motors and Mercedes Benz are set to roll out mainstream and luxury EVs that are affordable. With inflation, Tesla’s luxury EVs’ demand is set to plummet.
Lead Auto Analyst John Murphy predicts that Tesla’s market share of the electric car market is set to dwindle from 70 percent to ‘low teens.’
Last Words
Everyone is aware of billionaire Musk’s sentiments towards SpaceX and Tesla. But focusing on Twitter alone, made Tesla pay the consequences. Maybe this decline in TSLA could be a wake-up call for Musk to devote more time to Tesla and give it the “epic end of the year”, rather than trying to turn around a dying social media platform. The road ahead will test Musk’s strategic decisions to prove that Tesla is moving faster than ever.
