Tesla stock has nearly doubled in the first six weeks of 2023. If Elon Musk replaces himself as CEO of Twitter by the end of the year, will his added free time make Tesla stock go up even more?
Not at all. Based on what I wrote in January, there are four reasons Tesla stock could be worth less than $50 per share:
- Musk’s Twitter is turning off Tesla customers — that won’t change as long as he owns the social network
- Electric Vehicle (EV) customers are buying from Tesla rivals
- Tesla is offering large discounts to boost unit sales — angering pre-discount buyers
- Tesla stock is way overvalued
As long as he owns Twitter, I do not see advertisers coming back or Tesla’s core customers getting any less comfortable with Twitter’s hate speech.
Meanwhile, EV customers are still buying from Tesla rivals, Tesla is still offering discounts, and Tesla stock — up 94% since the beginning of the year — is even more over-valued.
(I have no financial interest in the securities mentioned in this post).
New CEO at Twitter?
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On February 15, Musk said he would try to hire a new CEO for Twitter — which he bought last year for $44 billion — by the end of 2023. Speaking at the World Government Summit in Dubai, Musk said he planned to hire his replacement after he has stabilized “the organization and [made] sure it’s in a financially healthy place and that the product roadmap is clearly laid out.”
Musk’s plan to hire a new CEO for Twitter by the end of the year does raise many questions: Will he really leave? If so, will the new CEO have the power to remove hate speech from Twitter and bring back advertisers? Will Musk stick around at Twitter in 2024 to run engineering as he said he would?
I do not know the answers to these questions. But if he does hire a new CEO and he sticks around to run Twitter’s engineering, it is possible that Musk will still be distracted from Tesla.
And with interest payments due on the $13 billion in debt he took on to buy Twitter, it remains possible that he will sell more Tesla stock to pay its debt.
Musk’s Twitter is Turning Off Tesla Customers
Once Musk bought Twitter in October 2022, Tesla customers became embarrassed to be associated with Musk.
A case in point is Tesla owner John Blumenthal who wrote in the Los Angeles Times, “Will people see me as a symbol of right-wing environmentalism, a living oxymoron?…Now that Musk has apparently swung to the far right — banning journalists from Twitter while reinstating neo-Nazis — I’m horrified to be associated with his brand whenever I drive anywhere.”
How many Tesla customers have sold their vehicles based on Musk’s acquisition of Twitter? There does not seem to be evidence that many have. Indeed, leasing firm Octopus EV told the Financial Times that two of its Tesla customers — out of more than 1,000 — had switched to another make.
One former Tesla owner — Bob Perkowitz who described himself as a former fanboy — said he hasn’t bought a new Tesla because of “Elon Musk’s apparent right-wing views, his tumultuous Twitter acquisition, and his radical emphasis on free speech — which he fears will allow misinformation to spread more widely online,” according to Insider.
In the absence of comprehensive data on how many folks who find Musk’s views repulsive have dumped their Teslas, those views are not good for its brand.
As Paul Krugman wrote in the New York Times
, “Tesla is a brand whose customer base largely consists of wealthy cultural liberals who were attracted in part by Elon Musk’s perceived with-it persona. Musk’s public embrace of MAGA conspiracy theories is an almost inconceivably bad marketing move, practically designed to alienate his main buyers.”
EV Customers Buying From Tesla Rivals
In January, I wrote about how Tesla is losing market share to rivals in the EV industry.
Tesla’s share of the US market for EVs is slipping — down from 70.5% in 2021 to 63.5% in 2022. “Tesla’s position is changing as new, more affordable options arrive, offering equal or better technology and production build,” according to S&P Global Mobility.
One such beneficiary is Ford. When Chris Romanowski, an Atlanta-area musician decided to buy an EV this year, he opted against buying a Tesla — finding the vehicle’s look ugly, and its ride bumpy and noisy.
Instead, he bought a $70,000 Mustang Mach-E. According to the Washington Post, Romanowski found it “more attractive and comfortable.” He thought the Mustang handed better and “his father had owned a candy-apple-red 1966 Mustang.”
Many rivals are piling in to the market. Ford — with about 7% share — is in second place; Kia is third with 5%; and Chevrolet and Hyundai control about 4% each. Meanwhile, “Mercedes-Benz and others are rolling out EV models that are challenging Tesla in the luxury market,” reported the Post.
Tesla Offering Large Discounts To Boost Unit Sales
In mid-January, Tesla responded to this competition by cutting prices by as much as 20% — which increased the number of buyers who can take advantage of a $7,500 federal EV tax credit.
Those Tesla customers who bought before the discounts were not happy. A case in point was Vikas Khanna, a healthcare executive who bought a Tesla Model Y SUV in late December.
Khanna told the Wall Street Journal that he paid about $65,000 for his Model Y — missing out on “about $5,000 in savings.” As he said, “It just reminded me and solidified why Tesla, as an organization, is one that I can no longer trust.”
Why would Musk risk turning off Tesla customers? Perhaps he is losing confidence in the brand’s value proposition after the company fell 25,000 cars short of its fourth-quarter delivery forecast of 405,000 vehicles.
For 2022, Tesla fell short of its target of 50% growth — shipping 2.3 million vehicles, up 40% from 2021.
Tesla Stock More Overvalued
Tesla is even more overvalued than it was in January. For example, the company began the year at a price-earnings (P/E) ratio of 36.5; by February 15, its P/E had soared to 58.3.
Tesla’s market capitalization on February 15 — $672 billion — was 60% higher than that of four much bigger rivals combined ($420 billion). Toyota ($228 billion), GM ($59 billion), Ford ($51 billion), and VW ($82 billion).
That represents a big increase in Tesla’s value since the end of December when its market capitalization of $389 billion was a mere $2 billion higher than that of all four of these rivals combined — $387 billion.
Meanwhile Tesla is much smaller. Its 2022 sales of $81 billion make up 9% of the $825.6 billion generated during that period by Toyota ($279 billion), GM ($157 billion), Ford ($158 billion), and VW ($284 billion) combined.
To its credit, Tesla is growing faster and more profitable than those rivals. In the most recent quarter, Tesla revenue was up 37% — comparing favorably to Toyota (+22%), GM (+56%), Ford (+10%), and VW (+24%) in their most recently reported quarters.
Tesla was considerably more profitable in the most recent quarter — with a net margin of 15.2%. This was much more than the net margins of Toyota (+4.7%), GM (+7.9%), Ford (-2.1%), and VW (+3%)
Investors think that Tesla stock is mildly over-valued. According to stock market researcher TipRanks, based on 21 Buys, six Holds, and three Sells, the average price target stands at $199.78 — 6% below its February 15 price of $212.
That price target could be too high. In December, Nicholas Colas of markets newsletter DataTrek Research, argued that Tesla’s market capitalization should equal the combined market cap of GM and Ford — which is $110 billion.
By that logic, Tesla’s stock would need to fall 84% — to trade at $34 a share — way below the $50 stock price I estimated in January.