Tesla Slides 9% As Demand Worries Pile Onto Concerns About Musk’s Twitter Focus

Topline

Tesla shares sank 9% on Thursday to their lowest level since October 2020 after the company upped discounts on its electric vehicles, as investors grow more and more skeptical on Tesla’s growth story, especially with its CEO Elon Musk’s head turned by the new apple of his eye, Twitter.

Tesla Model Y and Model 3 cars awaiting shipping from Shanghai.

VCG via Getty Images

Key Facts

It’s the third-worst day for Tesla stock of 2022, sending the company’s market capitalization to $393 billion, nearly 70% off of its $1.2 trillion mark in January.

Concerns about easing demand for Tesla cars following its latest price cuts are “the straw that broke the camel’s back” for Tesla stock, Wedbush analyst Dan Ives told Forbes, adding the latest worries are “pouring gasoline on the raging fire” on Tesla shares.

That fire has been stoked by none other than Musk, as Tesla stock’s decline has coincided with his $44 billion purchase of Twitter and subsequent self-appointment as CEO of the social media company.

Key Background

Tesla’s losses Thursday outpaced a still dreadful day for the market, the S&P 500 and tech-heavy Nasdaq down 1.4% and 2.2%, respectively. The only worse days for Tesla stock in 2022 were January 27 and April 26, the day after Twitter agreed to Musk’s takeover bid. Musk, who has sold $22.9 billion in Tesla stock to fund his Twitter venture and drawn the ire of Wall Street for spending his time on the far-less valuable social media company, has his own explanation for the slumping share prices: The Federal Reserve’s persistent interest rate hikes. Responding to an investor suggesting Tesla essentially now has “no CEO,” Musk explained the decline in Tesla stock was simply due to the historic inverse relationship between equity prices and interest rates. Musk is right about the market flailing as the Fed ups interest rates, with the S&P down 21% year-to-date, but considering Tesla was the 492nd-best performer on the index heading into Thursday, more specific factors are certainly at play.

Contra

Tesla has posted 13 consecutive profitable quarters, most recently reporting a $3.29 billion profit in the three-month period ending September 30, and Morgan Stanley recently named Tesla one of its top value stock picks of 2023. Still, Tesla’s forward price-to-earnings ratio, a metric that measures analysts’ confidence in a company’s future growth by comparing forecasted earnings to current share price, is just 27.1, according to the latest Yahoo! Finance data. That’s down from Tesla’s 121.95 forward price-to-earnings ratio 12 months ago, and trails stocks not typically cited as high-growth, including Costco and Hershey.

Crucial Quote

“The Musk-driven fiasco is a disaster of epic proportions with Tesla and Twitter in a spider web,” Ives said Thursday.

Forbes Valuation

We estimate Musk to be worth $147.6 billion, down 55% from last November. Musk is the second-richest man on earth but is now closer in wealth to the world’s third-richest man, Gautam Adani, than he is to the wealthiest man Bernard Arnault.