All is NOT well in Tesla-ville, -$94 Million loss Mkt Val.
“The king has lost his crown” a song lifted off ABBA’s 1979 hit album “Voulez-Vous”.
Although it was not released as a single but a b-side track, it has gotten the public attention.
45 years later, don’t you think it is apt that it could be used to describe Tesla / elon musk’s last week fall from grace?
Tesla Inc. had a blockbuster 2023. Its shares more than doubled during the brief 12 months period.
Unfortunately, 2024 is shaping up to be a very different note.
Elon Musk’s electric vehicle maker is off to its worst start to any year — ever.
$Tesla Motors(TSLA)$, the company has lost > -$94 Billion in market valuation in just the first two weeks of 2024.
It is not difficult to figure out why, as the Austin, Texas-based EV maker has been pounded by a barrage of negative news: (see below)
An about-face on EVs from the car rental giant $Hertz Global Holdings, Inc.(HTZ)$ .
No customers will want to rent an EV, only to have to waste more time charging it.
Yet, another price cut for its cars made in China, and signs of rising labor costs.
Tesla has no choice but to make deeper cuts in Chinese made Model 3 and Model Y in a bid to spur domestic Chinese “demand”. Both models have lost its competitive edge in US due to disqualification from US Tax Incentives.
All of this comes in the face of slowing growth in demand for EVs, especially in the US.
TD Cowen’s analyst, Jeffrey Osborne has the following comments:
“Investors’ main concern on Tesla is stagnating growth”.
Price cuts in China only fan those concerns (making it worse), because it is starting to look like “a race to the bottom for the EV industry given intense competition in that market.”
Ever since Tesla went public in 2010, the hit to Tesla’s market capitalization to start 2024 is the biggest the company has seen over a similar period.
In percentage terms, Tesla’s -12.50% fall YTD is the worst since 2016, when the stock fell -14% over the first nine trading days of the year.
To make matters worse, the odds of an imminent turnaround for the EV maker does not look good.
Tesla has been cutting prices on its cars aggressively since early 2023 in an effort to boost demand.
The result has been a steady erosion of its once-hefty profit margin.
Tesla’s automotive gross margin ex-regulatory credits for Q3 2023 fell from 27.9% to 16.3% a year ago.
The pressure will not diminish but only rises, now that production workers at Tesla’s US plants are getting pay raises, in an attempt that workers will “hopefully” refrain from unionizing, something mr musk is “totally against”.
Spear Invest, Chief Investment officer — Ivana Delevska says, “We are going through a cyclical downturn for EVs, but competitive dynamics are exacerbating the cyclical pressures”. “Price cuts and plummeting margins are all a function of these unfavorable competitive dynamics.”
Adding to the woes, Tesla has had to re-route shipments destined for its Berlin plant after Western military actions and security concerns in the Red Sea.
Tesla is suspending most production at its plant near Berlin from 29 Jan to 11 Feb, 2024 according to a person familiar with the matter.
Could it be due to laggard demand for Tesla EVs in Europe and to minimize costs, shut the plant for 2 weeks and “save” on salarlies?
Afterall, mr musk has been caught with his pants down on previous occasions, no?
Rude awakening for Tesla investors
Tesla first warned about the deceleration in EV demand during its October Q3 2023 earnings report.
Almost immediately after, automakers and suppliers across the globe chimed in with their own downbeat forecasts. Many carmakers dialed back their plans for expansion.
On 02 Jan 2024, Tesla reported its Q4 2023 delivery numbers.
While better than analysts’ expectations, the data put Tesla behind China’s BYD Co. in global electric-car sales.
The result has been a rude awakening for Tesla investors.
In 2023, Tesla was the eighth best performer in the S&P 500.
So far in 2024, it’s the eighth worst.
Shrinking Billionaire.
Naturally, Musk is taking a big hit personally.
According to Bloomberg Billionaires index, the world’s richest person, who gained more wealth in 2023 than anyone else on the planet, has seen his net worth shrink by -$23 Billion so far this year.
Musk regained the top spot, on Bloomberg’s wealth index last year, overtaking Bernard Arnault.
Now, ex-$Amazon.com(AMZN)$ Jeff Bezos is rapidly closing in, with $179 Billion to Musk’s $206 Billion as of Friday’s 12 Jan 2024 close.
According to Bloomberg’s wealth index, bulk of Musk’s net worth comes from:
His 13% stake in Tesla.
About 304 Million exercisable stock options.
About 42% ownership of SpaceX, that is valued at about $53 Billion.
Tesla remains a key player in the global transition from gas-powered vehicles to largely electric ones.
It is still far ahead of its potential rivals.
Although China’s $BYD Co., Ltd.(BYDDY)$ may have surpassed Tesla in the number of units sold, it still lags in (a) revenue and (b) profits.
BYD does not sell cars in the US, where Tesla remains the market leader. Will this landscape change in a year’s time when BYD will decide whether to enter the most competitive auto market in the world?
Tesla should be “afraid” for it may (again) lose its crown in domestic US market.
Tesla’s biggest problems are:
Its past success.
Hopes that it has generated but left unfulfilled.
As investors piled into the stock, Tesla’s market capitalization ballooned, making it way larger than any other car company in the world.
With the shares priced for perfection, that also made them highly vulnerable to big reactions to any negative news.
Value proposition.
That is why many Tesla proponents argue that it should not be compared to regular car companies.
To them, the ultimate true value of the company rests in the future and it’s hope to develop the first truly self-driving vehicles.
What the “blind” fans failed to see is Tesla has been promising this for years with no ends insight.
Most experts say the technology is still years, maybe even decades, away.
“Tesla failure to deliver on (1) fully autonomous driving and (2) AI promises, which are already embedded in the valuation” according to Spear Invest, Chief Investment officer — Ivana Delevska.
“Being simply another automotive manufacturer is not going to cut it for a $750 Billion valuation company.”
Just this January, $Alphabet(GOOG)$ spin-off company Waymo’s certified Level 4 (of 6 levels) autonomous driving robotaxis, will be tested on Arizona, Phoenix's highways — a first for the autonomous vehicle company. (see above)
This is in addition to Waymo driverless robotaxis operating in San Francisco since August 2023.
Incidentally, Waymo is the only company with a Level 4 certification for autonomous driving.
Tesla remains at its Level 2 for the longest time, reaffirming that Tesla is just a technically advanced EV maker, no more no less.
My viewpoints: (mine & mine only)
Tesla, the EV maker will not belly up overnight.
It is too big to just suddenly disappear from the face of the Earth..
It also does not mean its values and profits will not be eroded gradually overtime.
In fact, they will as be seen by Tesla losing its #1 position in China.
In 2025, when Chinese EV makers eventually arrive in the US, that is when competition will heat up even further.
Optimistically, Tesla has 1-more “good” year left; provided it is able to get its stock price back up to the peak of $293 per share, achieved on 12 July 2023.
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