Elon Musk has been known to do radical, eccentric things, but this time he may have gone too far. After buying Twitter, he’s now staying on course to bring free speech back to the planet. That has meant public disclosures about internal irregularities and censorship of free speech (at times in violation of company policy), massive job cuts, rehiring and so forth. He has also been experimenting with new revenue models (adding/removing checkmarks) as a kind of subscriber service even as advertisers flee.
The problem with all this activity around Twitter, or one of the problems, I should say, is that Musk is being increasingly associated with Twitter instead of Tesla
TSLA
, which is what we were used to. And it’s not happening in a good way. While his association with Tesla kept investors interested in the idea of EVs, his association with Twitter has given him a reputation as a right-winger, which doesn’t sit well with some of the folks buying his expensive cars. This disconnect is hurting Tesla shares. It also doesn’t help that Musk has been selling Tesla shares ($40 billion worth this year up to this week’s $3.5 billion).
Therefore, it’s no surprise that Tesla shares have plunged 55% year to date, and could be headed further down as Twitter’s problems continue and investors remain concerned about further stock sales. At current prices, he still holds $66 billion worth. So, there’s a lot of room to err.
But Musk has said that Tesla has a good team in place that can temporarily operate without him. Which means that we should probably focus on what Tesla’s doing right instead of how Musk is distracting us.
The company’s EV tech is still ahead of the pack. And even though traditional automakers like General Motors
GM
, Ford
F
, Hyundai, Volkswagen among others will soon be flooding the market with many more options, Tesla’s share of this fast-growing market is still substantially ahead of the others.
What’s more, according to the
latest registration data
from Experian (via Automotive News), battery-electric vehicle (BEV) registrations in the first nine months of 2022 grew 57% from the prior year. Tesla accounts for a 65% share of this. Additionally, Tesla has dealt with supply chain issues better than most other players, which is why its growth rate has exceeded most others this year. Ford’s Mustang Mach-E was an exception, growing at a faster rate from a much smaller base. Four Tesla models were in the top 5 with only the Mach-E making it to number three.
EV subscription startup Autonomy, which is adding a large number of Teslas to its fleet, expects Tesla’s market share to drop to 50% in the first quarter of 2023 and 40% by year-end. The idea seems to be that the market is growing faster than EV makers can supply. Therefore, whoever has capacity will be better-positioned to win. Tesla can make 15,000 vehicles a week, which is likely double all the other EV makers combined. So it has certain inherent advantages, However, we’ll have to see how this plays out since Tesla is likely to see some problems at its China unit because of COVID related shutdowns and uprisings throughout the country.
A look at its revenue growth trajectory in the last few years shows more or less consistent growth from the third quarter of 2020. And earnings growth has picked up from the first quarter of 2021. Its cash position continues to grow while debt levels continue to decline. With strong revenue and liquidity, increasing return on assets and very manageable debt levels, Tesla does appear to be a very well-managed company.
In regard to the future, the real rival for electric vehicles and the addressable/target market is of course the regular car that runs on an internal combustion engine. They’re still a lot cheaper, which is why EV costs have to come down.
Musk has a plan for this, with a new battery technology that’s expected to halve the cost of a Model Y battery. In typical Musk style, he has declared that the battery will enter volume production by the end of 2022. Even if he misses that target, and it happens some time in 2023, it wouldn’t be a bad thing at all, and would take the company a step closer to its long-term target of producing 20 million Teslas a year by 2030.
Therefore, I don’t think it’s a good idea to sell Tesla shares right now. The shares could be somewhat overvalued and more pressure from Twitter would make them even more attractive in terms of valuation and growth potential. I would hang in there at these levels and add to positions on further weakness.
Price Performance Year-to-Date
Image Source: Zacks Investment Research
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