Why are Tesla shares worth less than many expected?

Why are Tesla shares worth less than many expected?

There’s no denying that 2022 was a difficult year for the tech market, especially for Tesla. After its peak, in November 2021, the company suffered a devaluation of almost US$ 700 billion, or R$ 3.6 trillion in the current quotation. And 2023 started at a downward pace. In the first week of the year, shares of the electric car maker fell 12% – the worst performance in more than two years. And despite having had a slight increase this Wednesday (18), the scenario for 2023 is still discouraging.

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Much is said about the influence of Elon Musk, CEO of the automotive company, on Tesla’s image for the financial market. From the disruptive genius figure to his inconsequential attitudes, Musk’s figure has both helped and hindered the company. It is worth mentioning that the last year was not the best for the South African billionaire either, who broke the record for losing about R$ 1 trillion in net worth – leaving the post of richest man in the world.

Since the executive acquired Twitter and took over its direction, Tesla shareholders have been concerned that Musk is spending too much time with the social network, while the automaker suffers from an increasingly competitive market. Another cause for dissatisfaction on the part of investors was the billionaire having sold shares of Tesla to pay for the acquisition of $ 44 billion of Twitter. Since Tesla peaked, Musk has sold more than $39 billion in stock.

Devaluation goes beyond Musk’s relationship with Twitter

However, the latest developments point out that Tesla’s situation goes far beyond its competition for Musk’s attention with Twitter. Problems in the production of vehicles in factories in China, criminal proceedings in relation to the autopilot, empty promises and the threat of an imminent recession caused fears in the market that will not be resolved if Elon resigns as CEO of the social network.

Tesla’s sales and earnings prospects have been put into question since the company announced a slash in the value of some of its vehicles last holiday season. “Tesla is clearly starting to see demand drop in China and the US at a time when competition is increasing across all industries,” Dan Ives, technology analyst at Wedbush Securities told CNN.

Tesla’s real value

Experts point out that part of the problem with the company’s stock is that Tesla has sold itself as a disruptive tech company to investors rather than an automaker. As such, critics wonder whether the company was ever worth the trillion-dollar valuation it had in early 2022.

During its heyday, Tesla was worth the equivalent of today’s top 12 automakers combined — despite having only a fraction of the sales of any one of them. The company had projected a sales growth target of 50% per year, which helped drive this valuation. However, the company admitted in October that it would not reach the target until the end of 2022.

The company’s shares rose rapidly, reaching an appreciation of around 743% in 2020 alone, due to Musk’s reputation as a genius who would revolutionize the automotive industry. “Tesla was seen as a disruptive technology company, not an automaker, and a large part of that award is related to Musk,” said Ives.

empty promises

However, as can be seen, the company has not fulfilled most of Elon Musk’s promises and, moreover, is not managing to keep up with competitors.

One of the main examples is the Cybertruck, a Tesla pickup truck, announced three years ago and expected to be produced in 2021 — a promise that has not yet come into force. On the other hand, Ford and Rivian have vehicles of this type already available for purchase, even though they were announced later. General Motors (GM) also already has offers planned for the electric pickup segment.

“Elon Musk has a pathological problem with the truth,” reflects Gordon Johnson, one of Tesla’s most vocal critics among analysts, to CNN. He claims that the company’s shares will not stop falling until the automaker is priced for what it is and not by Musk’s promises. “When people say he’s a genius and an innovator, it’s based on all his promises that he never keeps,” he added.

Production problems hinder the manufacturer’s performance

According to Johnson, for Tesla to reach its growth goals, it will need to build new factories almost every year. However, the new auto plants in Germany and Texas that opened last year are still not operating at full capacity. Covid-19 restrictions at Chinese factories have also reduced production.

“Demand in the US has collapsed. Two months ago, the waiting time was two or three months. Now you can get a [carro] immediately. They will build more cars than they sell for the third straight quarter. It is the definition of excess capacity”, explained the expert.

Tesla now has big competitors such as BYD in China, Ford and GM.

recession in the united states

A Wall Street Journal report points out that two out of three economists predict an economic recession approaching in the United States later this year. One of the main reasons is the increasingly high rates to try to slow down the economy and contain inflation. Unemployment on the rise, housing market falling and banks making it difficult to access credit.

Given this scenario, the main markets to be reached are real estate and automobile. In the first half of January, Berkshire Hathaway, Warren Buffett’s company, sold a million shares in the Chinese electric carmaker BYD, a competitor of Tesla. The movement brought fears of a price war in the electric car industry to the market, amid weaker demand in the world’s largest automotive market.

Tesla shares rise 3.74% on Wednesday (18)

This Wednesday (18), Tesla shares soared in Shanghai, driven by the cut in the price of its main models in China. On Nasdaq, the growth was 3.74%, before the opening of business, quoted at US$ 136.40 (R$ 705). The rise in sales in the Chinese market led electric cars to reach the mark of 10% of global car sales.

However, it is important to note that the growth is at odds with the general situation in the auto market, which is exposed to high inflation, concerns about the Ukrainian War, supply chain and production pauses due to covid-19 restrictions. Data from LMC Data points out that total new car sales fell by around 1% in 2022, recording an 8% drop in the United States and 7% in Europe.