As any investor probably knows by now, Tesla (NASDAQ:TSLA) chief Elon Musk bought Twitter for $44 billion in October. To complete the deal, Musk sold 19.5 million shares of Tesla and negotiated several other financing options. However, analysts have pointed out that an even bigger price tag for the deal is that the Twitter project is taking up a huge chunk of Musk’s time, meaning the Tesla CEO isn’t really doing much at Tesla. Hey.
Tesla’s stock has fallen by double digits since Musk’s takeover of Twitter, which is likely not solely due to the economic crisis. It’s also notable that Musk has brought over 50 Tesla employees, mostly software engineers, to Twitter to do code reviews, among other things – meaning they aren’t doing much for Tesla right now.
With Elon Musk in the Twitter sphere, Tesla is taking a backseat
Few business leaders have had as much influence over their company’s stock price and access to financing options as Elon Musk. As CEO of Tesla, Musk helped change the way the world thinks about electric cars. Since purchasing Tesla from the original founders, Tesla has grown under his leadership into one of the most innovative and successful companies in the automotive industry.
While it’s difficult to accurately quantify Musk’s influence over Tesla, there’s no question that he has been the driving force behind the company’s success. Even though he hasn’t done much on the technical side, that’s not the CEO’s job anyway; His contribution was mainly to generate excitement, boost the share price and secure favorable loan terms and financing options for the company. Thanks to Musk’s vision and determination, Tesla is on track to revolutionize the transportation industry.
For many investors, Musk is the primary reason for investing in Tesla stock. However, she has a lot on her plate right now. Running Twitter is a full-time job that she doesn’t really have any experience with yet, because running a social media company is very different from running a car manufacturer. That’s why fears are growing that Tesla will fall off the radar for him. Reviving a global social media company is an ambitious project for Musk, and unless someone else steps up to lead Tesla behind the scenes, the EV company could face consequences.
Tesla faces challenges on many fronts
While Tesla is at the forefront of innovation, it currently sees supply chain issues causing problems for its production line. It was estimated that 100 units of Tesla’s Cybertruck would be produced by the end of 2022, but production has been delayed to 2023 due to a shortage of semiconductor chips.
However, that’s not the only thing the EV giant has to worry about. Covid and fears of another nationwide lockdown in China have spooked investors, and Tesla is already facing a drop in shipments. In October, Tesla cut the price of its electric cars in China to meet weak demand in the country. Analysts fear this could point to lower earnings in the coming quarters.
Also, subsidies for electric vehicles will soon be ended or reduced in countries such as China, Germany and Norway. This may lead to a slight decrease in consumer appeal to EVs.
Finally, let’s talk about the macroeconomic environment. Since the Federal Reserve’s goal of reducing inflation has not been achieved, further price increases are expected. Rafael Bostic, president of the Federal Reserve Bank of Atlanta, noted that he sees further strengthening of 75 to 100 basis points. Continued price increases will directly reduce the amount of electricity Tesla consumers buy, and this is in addition to inflation, making everything else more expensive for consumers and reducing their disposable income.
image is everything
Tesla shares have fallen sharply in recent months. Much of this has to do with the macroeconomic downturn, but it also has to do with recent events that are more company-specific.
Most of Tesla’s valuation always comes from speculation/opinion. Musk sold $36 billion worth of Tesla stock, and while his stake in the company is still 14%, it doesn’t bode well for the company if your founder sells stock and shows this key executive’s lack of confidence . it shows. His future.
In addition, Musk has announced that he is looking for a new CEO for Tesla. There is no specific timeline and the lack of clarity affects the share price. Some investors will not be happy with the regime change, as many had initially invested because of Musk.
Finally, there is a lawsuit against Tesla and Musk over their compensation package, which is a 10-year grant of 12 tranches of stock options. Each term vests when the company reaches specific milestones. The package is controversial, especially given its size, which is said to be $50 billion.
There are some bright spots for Tesla Bulls
Tesla bulls have been under pressure in recent months. However, there are still some positives. In the third quarter, Tesla produced 365,923 electric vehicles, up 42% sequentially, and total shipments were 343,830, up 35% over the same period. Such numbers were possible thanks to the increased use of smart factory operations and consumer demand.
In addition, free cash flow increased from $21.5 billion to $3.3 billion in revenue, largely due to the reopening of Tesla’s factories after the Covid lockdown. During the third-quarter earnings call, Musk said that Tesla is figuring out the right way to launch a share buyback program. He noted that the decision is up to the board, but the buyback program could range from $5 billion to $10 billion.
Tesla plans to produce 100 new Tesla semi trucks by 2022 and 50,000 annually by 2024. In addition, production of Tesla’s Cybertruck will begin in mid-2023 at the Gigafactory in Texas. It already has 1 million reservation orders.
China has proven to be an important electric car market in the past, but it looks like it could gain even more momentum. In November, we saw 14,000 EVs sold within China’s borders, which was cause for celebration.
There are also some macroeconomic indicators to consider. Domestically, the Inflation Reduction Act in the US will help attract consumers as electric vehicle buyers will receive a $7,500 purchase tax credit starting January 2023. This should boost the segment in the US again.
Tesla’s future is unclear and it remains to be seen where it goes. Musk’s decisions will tell us whether Tesla will persevere in its plans for the future. There is a lot of uncertainty surrounding this company and its stock. Tesla is still unmatched in the EV industry, but investors would do well to step back and watch the tide turn in the coming months.
This article was first published on GuruFocus.