As every investor is probably well aware by now, in October, the head honcho of Tesla (TSLA, Financial), Elon Musk, bought Twitter for $44 billion. To complete this deal, Musk sold 19.5 million shares of Tesla stock and took out a lot of other financing options. However, analysts have pointed to the fact that an even bigger price tag on the deal is that the Twitter project is taking over a tremendous amount of Musk's time, which means that Tesla's CEO is not really doing much at Tesla.
Tesla’s stock is down by double digits since Musk's takeover of Twitter, which likely isn't all due just to economic woes. It is also worth mentioning that Musk has brought over 50 Tesla employees, especially software engineers, to Twitter to do code reviews and more - which again means they're not doing much for Tesla at the moment.
Few business leaders have had as much of an impact on their company's stock price and access to financing options as Elon Musk. As the CEO of Tesla, Musk has helped change how the world thinks about electric cars. Ever since he bought Tesla from its original founders, under his leadership, Tesla has become one of the most innovative and successful companies in the automotive industry.
While it is hard to quantify the exact impact that Musk has had on Tesla, there is no doubt that he has been a driving force behind the company's success. Even if he hasn't done much on the engineering side, that's not the job of the CEO anyway; his contribution has been mainly in terms of drumming up enthusiasm, raising the stock price and securing favorable lending terms and financing options for the company. Thanks to Musk's vision and determination, Tesla is well on its way to revolutionizing the transportation sector.
For many investors, Musk is the reason to invest in Tesla stock in the first place. However, right now, he has a lot on his plate. Running Twitter is a full-time job that he really has no prior experience in, as running a social media company is vastly different from running an auto manufacturer. Hence, there is a growing fear that for him, Tesla will fall off the radar. Revamping an international social media company is an ambitious project for Musk, and unless someone else steps up to the plate to lead Tesla behind the scenes, the EV company could suffer the consequences.
Tesla is facing challenges on multiple fronts
While at the forefront of innovation, Tesla is currently looking into supply chain issues causing problems for its production line. It was estimated that 100 units of Tesla's Cybertruck will be produced by the end of 2022, but due to a shortage in semiconductor chips, production has been stopped until 2023.
However, that is not the only thing the EV giant needs to worry about. Covid and the fear of another nationwide lockdown in China have spooked investors, and Tesla is already facing a decline in shipments. In October, Tesla carried out a price cut on its EVs in China to battle the weakening demand in the country. Analysts are worried that it could signal lower profits in the coming quarters.
Plus, electric vehicle subsidies are either set to expire soon or are getting slashed down in countries like China, Germany and Norway. This might bring about a slight decrease in consumer attraction to EVs.
Finally, let’s talk about the macroeconomic environment. As the Federal Reserve’s target of dampening inflation has not been achieved, further price hikes are to be expected. Federal Reserve Bank of Atlanta President Raphael Bostic commented that he sees a further tightening of 75 to 100 basis points. The constant price hikes will directly decrease Tesla consumers’ buying power, and that's on top of inflation making everything else more expensive for consumers and decreasing their disposable income.
Image is everything
Over the last few months, Tesla stock has taken a beating. Much of that has got to do with the broader economic downturn, but it also has to do with recent events that are more company specific.
The biggest chunk of Tesla's valuation has always come from speculation / public opinion. Musk has disposed of $36 billion worth of Tesla shares, and while his stake in the company is still 14%, when your founder sells the stock, it's not a good look for a company and speaks to a lack of faith this key executive has in its future.
In addition, Musk has said that he's seeking a new CEO for Tesla. There's no specific timeline, and the lack of clarity hurts the stock price. Some investors will not be happy with the change of power as many invested initially because of Musk.
Finally, there is a pending lawsuit against Tesla and Musk about his compensation package, which is a 10-year grant of 12 tranches of stock options. Each tranche vests if the company reaches specific milestones. The package is creating controversy, especially considering its size, which is reportely $50 billion.
There are some bright spots for Tesla bulls
Tesla bulls have been under pressure in recent months. However, there are some positives still. In the third quarter, Tesla produced 365,923 electric vehicles, a 42% increase sequentially, and the total deliveries were 343,830, up by 35% during the same time. Such numbers were possible because of smart factory operations utilization and increased consumer demand.
Moreover, on revenue of $21.5 billion, the free cash flow ballooned to $3.3 billion largely due to Tesla factories reopening after Covid lockdowns. During the earnings call for the third quarter, Musk mentioned that Tesla is figuring out the right way to establish a share repurchase program. He mentioned that the decision was up to the board, but the buyback program could be from $5 billion to $10 billion.
Tesla plans to produce 100 new Tesla semi-trucks in 2022 and 50,000 units annually by 2024. Moreover, the production of Tesla’s Cybertruck will start in the middle of 2023 at the Gigafactory in Texas. It already has 1 million in reservation orders.
China has proven to be a key market for EVs in the past, but it seems like it might be picking up even more speed. In November, we saw 14,000 EVs being sold within China's borders, with this being cause for major celebration.
There are also some macroeconomic indicators to keep in mind. On a domestic level, the Inflation Reduction Act in the U.S. will help attract consumers as a $7,500 purchase tax credit will be awarded to buyers of electric vehicles from January 2023. That should turbocharge this segment once again in the U.S.
Tesla's future is unclear, and it remains to be seen where it is heading. Musk's decisions will let us know if Tesla stays in his plans for the future. There is a lot of uncertainty around this company and its stock. Tesla is still unrivaled in the EV industry for now, but it will bode well for investors to hang back and see which way the tide turns in the coming months.