By Charles Gasparino
With all that goes on with Elon Musk, it’s easy to forget it’s Tesla that finances the Musk machine: His purchase of what was Twitter (now renamed by Musk as X) that enhances the reach of his opinions; his ability to send rockets into space, and whatever else he might dream up in the next five minutes
Tesla, the world’s largest electric-car maker (still holding a slight lead over China’s BYD), is the reason why Musk — at least as this column goes to press — is the world’s richest person with a net worth above $200 billion.
Notice the qualifier.
Sometime soon, Musk may fall to No 2 or below, overtaken by Bernard Arnault, who runs the LVMH luxury goods empire (he has taken some hits to his wealth lately with a decline in LVMH shares) or maybe Amazon founder Jeff Bezos.
Musk, of course, is Tesla’s CEO and largest shareholder.
The latter is the reason for Musk’s shaky position on the billionaires list.
The company has hit a rough patch, and as I pointed out, his wealth is tied up in the stock.
How rough and whether it’s existential to Musk’s fortune, the future of Tesla and its shareholders, has been a matter of intense debate in the market recently.
There are many true believers in Musk and Tesla, of course.
And it’s hard not to root for a free-speech guy who replatformed conservatives canceled by the leftists who ran Twitter before his 2022 purchase.
Yet if you’re a betting man (or woman), the anti-Tesla “bear” case looks increasingly appealing.
Tesla’s stock is down 17% the past month (compared to a 2.4% decline in the S&P).
It tanked Wednesday when Musk himself said the company’s wonky business model faces some significant hurdles.
The company’s new “Cybertruck” isn’t selling.
Tesla remains profitable (it wasn’t always that way), though it missed on earnings and revenues.
Depending on the analyst, margins are collapsing.
It has plans for expansion with a new plant in Mexico.
But it’s doing all of this in a higher interest rate environment, which means that with a recession looking very possible in 2024, there will be less demand for its product.
As Musk put it: “I just can’t emphasize this enough that [for] the vast majority of people, buying a car is about the monthly payment. And as interest rates rise, the proportion of that monthly payment that is interest increases naturally.”
Faking a buyout
We’ve been here before, of course.
Recall Tesla’s dark days back around 2018, when the firm was literally on the verge of bankruptcy.
Shares were tanking, and the short sellers — who make money when a stock falls — were having a field day.
Production delays, no profits, and Elon the target of regulatory probes after he faked a buyout at a massive premium, had the market signaling a “Q” after the TSLA stock symbol to denote its imminent Chapter 11 status.
Shares are up nearly 800% since those dark days.
The bulls talk about Tesla’s strong revenues and the fact it can produce cars cheaper than anyone else in the EV market.
But to buy the Tesla “bull” story, you also have to suspend some disbelief.
EVs are expensive and still inefficient.
How could they be a sustainable mass market product?
Musk suggested as much Wednesday.
Tesla, he said, is ready to cut prices to make its EVs more affordable to the vast middle class.
Analysts are also starting to notice that Tesla’s EVs, and EVs in general, might not be sustainable in an ESG sense either.
Part of Tesla’s market allure wasn’t that it sells a lot of cars, because it doesn’t.
It is a function of the Environmental Social Governance investment craze, where asset managers gauge stocks on a variety of non-financial metrics, including their company’s dedication to sustainability.
EVs might not burn fossil fuels, but mining the chemicals in its batteries is environmentally hazardous, done in slave-labor-like conditions.
Electricity comes from somewhere, most of it not from all those “clean energy” windmills, but from our stressed-out electrical grid.
Plus, ESG is now on a potential death march following common-sense attacks that it led to higher inflation (forcing oil companies to stop drilling when gas prices remain high).
ESG fund returns are shaky and can’t really compete in a tough higher-interest-rate market.
Tesla shares could take a haircut as ESG fades from existence.
An even bigger worry is Tesla’s questionable fundamentals.
Gordon Johnson, the CEO of GLJ Research and a longtime Tesla skeptic, explains that Tesla’s financial metrics, even before the company’s recent contretemps, looked increasingly “fugazy.”
Sales growth has been in decline. Tesla produced 435,000 cars in the third quarter of 2023, from 466,000 in Q2.
Its stock market value of $700 billion is worth more than the next seven largest automakers combined.
Yet, Johnson says, Tesla sold just 3% of the cars those companies in the aggregate sold over the past year.
He points out that sales growth has been in decline.
Tesla produced 435,000 cars in the third quarter of 2023, from 466,000 in Q2.
Its stock market value of $664 billion is worth more than the next seven largest automakers combined.
Yet, Johnson says, Tesla sold just 3.9% of the cars those companies in the aggregate sold over the past year.
“I don’t want to say Tesla is going out of business, but it’s grossly overvalued,” Johnson tells me.
If that’s the case, Musk’s status as the world’s richest man is grossly overvalued as well.