Elon Musk's future is crucial to the success of the automaker.
This month has not been good for the stock market. However, Tesla has had an awful month—and a dreadful year—to date. With or without the aid of Donald Trump's South Lawn salesmanship, Tesla's stock price has fallen over 40% since January 1, despite a recent recovery.
Some of that decline is attributable to real problems with Tesla's main business unit: For the first time in almost a decade, sales dropped last year, and now Wall Street analysts are predicting that sales dropped again in the most recent quarter. With a 49% year-over-year drop in February sales in China and a precipitous decline in sales in Western Europe, Tesla is confronted with intense pricing competition. Details are few, although the business has stated that new, cheaper models will be available later this year.
On the other hand, two terms best describe the main factor that has contributed to Tesla's share price decline: Steve Musk. Tesla has always been what is known as a "story stock," an investment whose value is based more on the narrative surrounding the company's potential than on its actual financial performance. The protagonist and storyteller of Tesla's upcoming film has mysteriously disappeared.
The goals that Tesla's investors have for the company's future have undoubtedly evolved throughout the years. Previously, Tesla's ability to dominate the worldwide electric-vehicle market was the main attraction for investors. Due to increased competition, especially from China, that goal has now faded. Now, though, investors see the firm as a future market leader in artificial intelligence robots and self-driving automobiles. However, Musk's brilliance and capacity to steer Tesla toward the future have stayed constant throughout the saga. "It is almost impossible to separate Tesla, the company from Musk," has already been written by finance expert Aswath Damodaran. Your beliefs on the other will be shaped by your beliefs regarding the first. Even now, Tesla's market cap is higher than the next nine largest automakers put together, and the stock trades at an absurd price-to-earnings ratio, all because investors have bought into Musk's extravagant predictions for the company's future.
Presently, Tesla is facing difficulties due to investors' diminished trust in Musk. It appears that Tesla's sales in the US and EU have taken a hit due to the backlash he has sparked as a result of his political actions, which include both his employment by the Trump administration and his open backing of Germany's far-right AfD party. Big investors aren't comforted by his erratic social media behavior and zany stage antics, like wielding a chain saw at the Conservative Political Action Conference. On the contrary, a recent poll by Morgan Stanley revealed that 85% of investors believe that Musk's political engagement is influencing Tesla's business fundamentals in a negative or severely unfavorable way.
Aside from the hubbub, the plain truth is that Musk now appears to prioritize DOGE, SpaceX, his new artificial intelligence firm, and X over Tesla. Musk is constantly commenting on social media, heading a government agency, and sponsoring political campaigns. He has also threatened lawmakers with potential primaries. Simply put, he no longer appears enthusiastic about producing automobiles. Problems, like the worldwide emergence of extremely competitive EV manufacturers like BYD of China, have been plaguing Tesla since the beginning of the year, and he has provided no concrete plans for how the company would address them. On Monday, he admitted to Fox Business that he was having "great difficulty" juggling all of his businesses. Investors could only take solace in a Monty Python quote: "Always look on the bright side of life." Dan Ives, an analyst at Wedbush Securities and perhaps the most vocal Tesla supporter on Wall Street, blasted Musk this week in a note to investors for "showing no attention to Tesla during this turbulent time." Musk's apparent lack of interest in the auto industry has grown increasingly apparent.
It seems like Musk was implicitly acknowledging that he needed to modify his ways (or at least pretend to do so) when he appeared at the White House with Trump on Tuesday for what was essentially a car advertisement. As Trump proudly displayed the Tesla Model S he had purchased, Elon Musk made a bold commitment, pledging to treble the company's U.S. production in the next two years. The event showed that Musk was trying to stem the tide, even though neither guy had a stellar track record of keeping promises. At least some of the investors were pleased by the story: Tesla's stock had recovered more than 10% from its low point on Monday by the time the market closed yesterday.
It remains to be seen if that will be enough to compensate for the setbacks experienced over the previous four months. Tesla stockholders are accustomed to wild swings in the market, as the price of the company's shares has dropped by 40% or more eight times since 2018. Once narrative stocks manage to reawaken the interest and faith of investors, they have the potential to swiftly recover. However, Musk will need to show greater passion and conviction in his discussions and management of Tesla for that to happen. He seems to have lost his train of thought as a storyteller.
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