by Philip Pilkington
Friday, 20
May 2022
Analysis
10:19

Tesla’s golden moment is over

The EV company's share price has taken a beating in the last 12 months
by Philip Pilkington
Credit:

Even before yesterday’s embarrassing revelations about Elon Musk, Tesla was having bad year. Its stock price has fallen nearly 41% since 2021 and it is showing no sign of slowing down. For reference, Ford — America’s largest car manufacturer — has seen its stock price rise by around 6% in the same period. Clearly, the problem is not the car market. So, what is going on?

Tesla has followed a similar trajectory to another Silicon Valley start-up: Uber. The taxi company has seen a decline in its stock price of almost 55% in the last year, even though Medallion Financial, a company that provides loans to purchase taxi medallions in the US, is only down around 19%. This shows that, like Tesla, the issue is the company, not the market.

These companies have a lot in common: both are experimental business models and neither one has proven itself to the market. Uber has been around for 13 years and has never turned a consistent profit, while Tesla has been around for 14; any profit the company makes is completely reliant on carbon credits — and occasionally on Bitcoin trading.

Uber, meanwhile, has serious problems with its business model. Hubert Horan, an analyst of the taxi industry, argues that “the widespread belief that it is a highly innovative and successful company has no basis in economic reality”. While I would not go quite that far in describing Tesla, I have laid out problems with its business model on this site before.

The two companies’ stock prices are falling in line with the broader tech stock market crash. Technology is where most of the entrepreneurship — and therefore risk — has been in the market this cycle. Markets basically think of companies like Uber and Tesla as tech companies and price them accordingly.

But Tesla has even deeper problems. This week, it was announced that Tesla would be dropped from the top ten ESG rated companies in the S&P500. This is problematic for Tesla because it markets itself as a green investment and, as mentioned, relies on carbon credits for its survival. The outrage over Tesla having its ESG rating downgraded has itself provoked a lot of backlash and, in the medium-term, may have investors questioning exactly what these criteria are based on. Ultimately though, given the general market turmoil and Tesla’s until-now impeccable green credentials, in the immediate-term the pain will be felt by the company.

This raises another issue for Tesla: its founder’s decision to enter the political arena. Since Elon Musk announced that he was going to buy and reform Twitter — another company with dubious business prospects — he has been making increasingly political statements on his own Twitter account.

If Musk becomes more vocal about his support for the Republican Party, this could alienate a Democrat-dominated Wall Street — lobbying from the financial sector has vastly favoured Democrats over Republicans in recent years. That said, Musk has tended to be ahead of the pack in many regards — a trend-setter, not a trend-follower — and it is an open secret that many in the professional classes are disappointed with the Biden administration, both in terms of the direction it has taken and in terms of actual outcomes.

Given the car company’s already shaky business model, it is hard to see how the Twitter deal will help Musk’s or Tesla’s interests. One thing’s for sure: Tesla’s golden moment is over. Whether Elon Musk’s is remains to be seen.

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Matt M
Matt M
2 months ago

That S&P 500 ESG downgrade story stinks of revenge from the woke nutters. I wouldn’t worry though because I think the days of the ESG investment are numbered. Downturns cause investors to value fundamentals over fashionable froth.

Ian Stewart
Ian Stewart
2 months ago
Reply to  Matt M

It was because a handful of unhappy ex employees have made claims of racism in the workplace. Tesla pays them off to stop the bad press. Same applies to the story about Musk’s so called ‘embarrassing revelations’.

I’m quite appalled at the tawdry, gossip-mongering style of this article. I expect better from Unherd – a proper analysis of the cultural or political reasons for the stock performance, not this tittle tattle.

Philippe W
Philippe W
2 months ago
Reply to  Ian Stewart

I can give you some ownership reasons
+ the Supercharger network size hasn’t kept pace with fleet size, meaning there are now many fewer charging points per car and the deficit is getting obvious
+ Tesla has this week opened this network to the public, exacerbating the above situation while at the same time diluting the company’s USP (i.e. the non-public, gated community approach to charging). The Supercharger was what really set the company apart, in that the most exclusive Porsche still has to use BP chargers which typically have a “Sorry not in use” bag over them
+ ditto servicing. If I go into my Tesla app to book a dummy appointment it’s the 2nd week of June before I can be seen. If I do the same for my wife’s MINI it’s Tuesday
+ the products being exclusively middle class luxury items remains an unconcealed truth that everyone still skirts around; in the UK the Model Y is £55-65K in a sector where the average price is under £40K, so it’s not hard to see how the undeniably great sales figures have been heated by undeniably great tax breaks, all of which will be ending soon, and at which point ballpark BMW X5 money looks really quite expensive 
+ Tesla’s own stated business model is that it is “a tech/software company”. This is something the market, having recently cottoned on to what Korean multinationals are capable of, is realising was more PR spin. Tesla’s much hyped self-driving car ‘software’ has (I can fully attest) been in a dangerous half baked state for almost a decade now, with no real progress in the interim other than the accumulation of lawsuits and a growing sense of unease and distrust of drivers such as myself
I could go on, but the Tesla defence cult – visible here and in every nook and cranny on the internet – always ends up drowning out the legitimate concerns.
PS yes, the downgrade strikes me as a petty move, too, but look at TSLA since the start of the year: as they always say, the market knows

Martin Winlow
Martin Winlow
2 months ago
Reply to  Philippe W

Please don’t go on… Your entire comment can be refuted by concentrating on just one; the question of service slot wait time.

What are you and clearly lots of other pundits simply do not appear to understand is that generally EV drivetrains require *no* servicing. The reason why you can get your mini serviced next week is because servicing is where BMW make so much of their money!

They are hardly going to make it difficult for you to pay them for the endless servicing ISVs require in their lifetimes!

Philippe W
Philippe W
2 months ago
Reply to  Martin Winlow

lol no, this really is fanboy rhubarb
Dragged down by Tesla, EVs least reliable cars on British roads (April 1, 2022)
All cars have a service schedule and the service schedule for a Tesla is printed in its manual. The reason service locations around the UK are unable to provide owners with prompt appointments is because they’re rammed.

Last edited 2 months ago by Philip L
Justin Clark
Justin Clark
2 months ago
Reply to  Ian Stewart

yes you saw that with the C4 documentary on Elon Musk – Hero or Villain… You just knew how it was going to be presented….

Dr T
Dr T
2 months ago

Would like to hear author explanation on “the car company’s already shaky business model”. What makes him think it is shaky?
Is it… nearly 0 debt, a stark contrast to other car companies? 19.2% operating margin? 17.5B cash on hand? top-line year-over-year growth over 80%? 69% increase in deliveries YoY, while hardly increasing Opex?
Certainly is hard to say that Tesla has a shaky business model at this point. Could’ve maybe claimed that as they went through growing pains in 2018. A lot has changed since then.

Bob Sackimanow II
Bob Sackimanow II
2 months ago
Reply to  Dr T

As the esteemed Senator from NY years ago Patrick Moynihan publicly stated, you’re entitled to your own opinions but not your own facts. The author of this article should think about that

jason l
jason l
2 months ago

Not sure how seriously I would take this article… The author clearly doesn’t understand even the most basic foundations of politics… Wall Street is not Democrat leaning… They don’t donate to Republicans because they don’t need to try to influence them… ‍♂️ Republicans are intrinsically pro-business/pro-growth.

Ian Stewart
Ian Stewart
2 months ago
Reply to  jason l

I think the author has demonstrated his need to grind an axe against Musk.

nick davie
nick davie
2 months ago

The first paragraph is incorrect.
If the author is taking “since 2021” as the end of last year then Tesla is down 44%. Ford is down 42% during the same period.
If he means 12 months ago, then Ford is down 6% and Tesla is up 14%. Bad journalism.

James Ard
James Ard
2 months ago

The idea that Tesla profits depend on carbon credits is out of date. Teslas’s financials are actually quite good and the dramatic growth in sales and revenue is what has driven the stock price. Tesla has more cash than debt. Tesla has a gross margin of around 35% on its cars, whereas the legacy manufacturers are in the 5-9% range. Tesla has better financial metrics than GM Ford, or even Toyota. That said, the company is still richly valued with high expectation baked in to the price. Nearly every good techy high growth oriented firm out there has been cut in half from peak stock price. More speculative growth companies with no profits have been savaged. Yes, and Musk’s antics are contributing to current Tesla stock gyration. Not smart to make jokes about the President and senators. Also poor form for the President to ignore Tesla and bring in GM for EV day and proclaim what a great job GM was doing in the EV space. If it weren’t for Tesla, GM and Ford would still be thinking about EV’s in another decade or two.

Dr T
Dr T
2 months ago

Opening line: “The EV company’s share price has taken a beating in the last 12 months”. Let’s see…. TSLA +14% in last 12 months, and Ford down 6% in last 12 months.
Then the author proceeds to make comparisons between the two companies in reference to stock performance YTD (over the past 5 months). Haha. Interesting..

Philippe W
Philippe W
2 months ago

I have a Tesla. It’s an OK car the same way a Lotus is an OK car. It is of patchy build quality, not that reliable, and the dangerous self-driving technology that Tesla’s PR department use to hoover up half the company’s sales is a total pipe dream. Getting hold of a service appointment is like getting hold of a GP appointment. Merely from a long term ownership point of view, there are very good reasons the downgrade makes sense.
P.S. I’ve edited this message within 5 seconds of posting it and it receives the “Edited” flag. Unherd is just so nineties sometimes.

Last edited 2 months ago by Philip L
Ken Schroeder
Ken Schroeder
2 months ago
Reply to  Philippe W

But who is doing it better? Having spent 30 years in IT I would never trust self driving tech. Tesla even says it’s not 100% self driving. People just want to believe it.. We’re 20-30 years away from reliable , 100% self driving technology. I have never seen a computer that doesn’t crash at some point. It’s “Drivers Assistance” not fully automated driving. Read the instructions! Space X is flying men to the space station. NASA is still trying. GM and Ford are just starting to manufacture electric cars. Tesla has been doing it for years, Is anyone else boring tunnels under cities? Nope. People attacking Musk are just butt hurt, Don’t attack people like him, Do it better, then you can criticize him.

Philippe W
Philippe W
2 months ago
Reply to  Ken Schroeder

Have seen variations of the Musk-as-immaculate-saviour response so many times am beginning to wonder if it’s a Chrome extension.

Hoppy Hoppers
Hoppy Hoppers
2 months ago

This is laughable. “Tesla profits are driven by carbon credits and bitcoin.”

Tesla had revenues of 18 billion and EBITDA of 4.5 billion in 1q. About half a billion of those profits were regulatory credits, so you are only off by a factor of 9x. Also, Tesla has taken a loss on BTC.

Did you write this article in 2019 and forget to update it?

Bob Sackimanow II
Bob Sackimanow II
2 months ago

Stopped reading when author claims Uber and Tesla have a lot in common. Let’s see. A company Tesla, making capital equipment aka cars, is similar to a service provider similar to taxi/limo service . Hmm, not really.

Rob Atkinson
Rob Atkinson
2 months ago

I took a Model 3 dual motor long range for a test drive the other day in Bristol, UK. Quite an amazing car. The software is outstanding and in a class of its own. The way it knows about the traffic around the car and how it slows down when you ease your foot off the accelerator is impressive. The way it maintains a gap behind the car in front when you come to a stop without any signs of rolling back, also impressive. The road holding is very firm and flat with no roll. The suspension definitely designed with smooth motorways in mind.

My e-golf feels much better on the road, but has many years of chassis and suspension tweaks to make it very supple and assured. That said, the Tesla is space-age technology and way ahead of anything the competition can muster. It’s almost near perfection in terms of technology, just some minor chassis and suspension tuning to be done and perhaps an option of air suspension and you have a top-flight car. I’m almost 65 and what Elon has managed to achieve in a very short space of time is very impressive. To transform an entire industry stuck in its ways is testament to his character and shrewd judgment.

He’s likely to enter politics shortly I suspect. He’d make a good president. One that would get things done, rather than play lip service to the challenges at hand.

Mark W
Mark W
2 months ago

Tesla over? Not so fast. To see the future, that knowledge doesn’t exist. Who would have ever thought a senile old curmudgeon would become POTUS.

John Gilardi
John Gilardi
2 months ago

nope, just the powers that be trying to squash a person that is far more brilliant than pelosi or biden, someday musk will be world leader and take humanity to faaaaaar better places than the old
spiteful people in charge today.

Ken Schroeder
Ken Schroeder
2 months ago
Reply to  John Gilardi

Everyone makes a mistake now and then. Tesla, Check, Space X, check, Boring Company, Check, Clean up Twitter, Check, Making billions of dollars when you started out with nothing?, Check,..Stick your toe in politics, oops, He’s correct of course, Democrats and Republicans spend most of their time trying to attack the competition instead of doing what they are elected to do. Elon should just have ignored the pond scum and charged ahead. But i can understand how sometimes you just want to rub their nose in it. But politicians are professionals at throwing dirt at their detractors. Mainly because the are not very good at doing what they are elected to do.

Ken Schroeder
Ken Schroeder
2 months ago

People with the foresight of Musk are too smart to run for political office, which is too bad. We need people with fresh ideas badly. But I can’t blame them. They do get attacked from the left, and ocassionally from the Right on petty things that are so annoying that why do they need it? The flight attendent Musk accusation is a second hand story from someone that most likely was a gold digger. They were easier to pay off than fight.. Musk, started an electric car company, bores tunnels under cities, sends men to the space station and soon to the moon and Mars, and the Democrats want to to attack him over a second hand story? The guy came to America from South Africa through Canada with next to nothing and became the richest man in the world, acomplishing all those things and this is the person Democrats hate? Man, I’m 1000% behind Musk, we need 100 of them. Cleaning up Twitter? Great Idea, stepping into politics? Everyone makes a mistake now and then. Politics is all about spending 80% of your time dissing the other guy, not doing what you are elected to do. If I could work for him or even be around him tell me the time and place. Who would you rather associate with? Biden, Trump or Musk. No contest. Tesla is the worst electric car company except for all the others. Just like Democracy is the worst form of government except for all the others. If he’s so bad, you do it better…I thought so…

Samuel Jakob Cavazos
Samuel Jakob Cavazos
2 months ago

The entire purpose of the Boring company is to dig holes through the earth just so Tesla Vehicles can cut through traffic. They aren’t designed for most vehicles. Those tunnels are designed specifically for Tesla, and Elon has even discussed using the Boring company as an incentive to buy Tesla.

You can’t have it both ways.

Martin Winlow
Martin Winlow
2 months ago

You talk as if TSLA has never had a big fall before. It has happened several times and I expect it will again!

Martin Kittel
Martin Kittel
2 months ago

Most electric car buyers don’t give a hoot about Elon Musk’s escapades. Admittedly, I also fancied buying a Model S a few years ago, because it was as advanced as the iPhone when it hit the market. Last year I bought a Porsche Taycan instead. Base model is £10K cheaper than Tesla and at least I don’t drive round in a souped up Honda that’s poor quality but in a proper piece of engineering. Why buy a model 3 moon buggy if you can buy a Polestar for the same price? The truth about Tesla shares: They are just as overpriced as the cars. And the novelty factor is definitely over.

Last edited 2 months ago by Martin Kittel
Nebojsa Demr
Nebojsa Demr
2 months ago

We need to start mining Lithium fast as CO2 will continue to rise Places like Pakistan and that area of the Earth temperatures will probably hit 60 degrees within 200 years electric is only way and fast I will be dust by then lucky I have no children as they will probably have to adapt to temperatures that we don’t have now and become night dwellers some creatures do this now due to temperatures they live in.

Justin Clark
Justin Clark
2 months ago

…Buy The Dip

Helen Almonte
Helen Almonte
17 days ago

I drive a Tesla. It’s an OK car, just like a Lotus. The car is of patchy build quality, not very reliable, and Tesla’s PR department uses dangerous self-driving technology to hoover up half of the company’s sales.

Jim Cameron
Jim Cameron
2 months ago

I’ve said for a couple years that Musk will crash. Hard, maybe prison. He has an intemperance problem and a judgement problem.

Tesla owners’ satisfaction after a year of ownership is dropping precipitously. There are needlessly proprietary hardware pieces-nuts and bolts-that can break, fall off or be lost due to poor manufacturing quality, that are one of a kind and are 100% unavailable. And require special tools that are also unavailable.

And his delving into conservative politics is pure poison for the market. Absolutely pure poison. He is ruining his own brand. He has brusquely offended half of his potential customer base including 70% of affluent females.

His interest in twitter was to put trump back on the platform and was a needless, stupid, idiotic distraction.

Recommendation: avoid purchasing a Tesla. Serious quality problems.

Ken Schroeder
Ken Schroeder
2 months ago
Reply to  Jim Cameron

Yeah OK, Tesla is a bad company, But better than all the nother ones. you do it better and get back to us.

hayden eastwood
hayden eastwood
2 months ago
Reply to  Jim Cameron

The fact that a reasonable opinion like yours attracts such a visceral response from so many shows how much Musk has become a polarising figure within the culture wars.
Since he’s on “team unwoke”, all sins are glossed over and any criticism of him is seen as proof that the detractor is “one of them” (ie some kind of mad woke swivel-eye’d loon).