There’s no denying that the arrow next to $TSLA has been pointing down and intensely red throughout 2022. The decline in Tesla, Inc.’s stock is the second biggest market spectacle happening right now, after Sam Bankman-Fried’s indictment and the wider chaos in the crypto world. But bystanders, Tesla executives, and Wall Street traders aren’t necessarily all telling the same story about the nature of this plunge and why it’s happening.
Is the market in all its infinite wisdom punishing Tesla CEO Elon Musk for running one of his other companies, Twitter, as a capricious culture warrior with a penchant for mass firings? Is Tesla simply on trend with the rest of the tech world? Or is the real explanation — and I hope you’re sitting down for this — a third thing?
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And is the situation at Tesla even that bad in the first place?
Is Tesla’s stock decline really that bad?
As of Tuesday, shares in Tesla had declined 69 percent in 2022. Only two companies among the 500 tracked by Standard & Poor’s famous S&P 500 index are faring worse: Match Group (yes, the dating app company), which lost 70 percent, and Generac, a Wisconsin-based company that mostly makes gas generators, which lost 74 percent.
If being outperformed by more than 99 percent of the companies in a major index doesn’t strike you as bad, here are some other ways of describing how bad things are: As of Dec. 27, Tesla’s overall market capitalization — the price of one share times the number of shares — had sunk to $345 billion after it had at one time been above $1 trillion. This spat Tesla right out of the top 10 ranking of U.S. companies by market capitalization, and in fact, as of this writing, places it at no. 15.
But it’s worth noting that the price of Tesla stock blew up during the pandemic, and certainly has not yet lost all of its COVID-era gains. If you bought your shares just before the pandemic was declared on March 11, 2020, you might have paid $40.53 per share, compared to $113.72 as I write this. So if you simply held your Tesla stock from then until now, you’d have more than doubled your money.
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Is Tesla stock declining because Elon Musk is doing a bad job at running Twitter?
The CEO of Texas-based car company Tesla is very busy over at a California-based social media company where he’s also CEO, and what he’s been doing there hasn’t produced many positive headlines. He’s reportedly slashed Twitter’s staff from 7,000 to about 2,000. He’s claimed Twitter might go bankrupt. He’s reinstated notoriously noxious accounts on the right and on the left. He’s reportedly stopped paying rent for Twitter’s offices, and directed staff not to pay vendors. He’s announced his intention to step down as Twitter’s CEO, which would, by all appearances be a popular move according to Twitter users, yet he hasn’t actually stepped down or offered a timeline as to when he will. And he’s done it all while ceaselessly using his own website to post divisive memes and petulant right-wing culture war signifiers.
Having said that, whether or not Musk is doing an objectively bad job at Twitter is a matter for another time (for what it’s worth, features that used to be reliably good are starting to suck), but what we can say for sure is that markets are driven by people’s emotions, and people are having a lot of emotions about what Musk is doing at Twitter. Moreover, some of the people feeling those emotions are market-moving power players.
For instance, Gary Black, co-founder of the exchange-traded fund Future Fund Active, claims there is “no Tesla CEO,” while Musk is busy over at Twitter. Black has been one of the people campaigning for Musk to step down as CEO of Twitter, tweeting that Musk needs to “hire a credible social media CEO” and demonstrate that Tesla’s “brand equity has not been damaged by” his Twitter antics.
Ross Gerber, co-founder and CEO of the investment firm Gerber Kawasaki, thinks Tesla needs a “shake up,” strongly implying that Musk needs to step down from Tesla (and Gerber thinks he should be replaced as Twitter CEO as well). But more specifically, Gerber thinks Tesla needs clarity as to “when Elon will be back from Twitter,” and Tesla also needs to “communicate about Elon’s stock sales.”
This last part is crucial. Musk has repeatedly dumped declining Tesla stock in exchange for about $40 billion over the course of 2022, and the apparent cause is obvious: Twitter has $12.5 billion in debt caused by Musk’s acquisition, plus about $3 billion in negative cash flow for the year. So it appears Musk’s company needed cash, and since his wealth is mostly tied up in shares of companies, he sold some. Still, dumping stock while it’s on the decline is not what confident investors want to be seen doing, and it’s far from a stretch to think the price of Tesla stock suffered when Musk was selling billions of dollars worth of it.
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And the calls for Musk to step down are also coming from inside the house. Billionaire Leo Koguan, a guy who says he’s the third largest investor in Tesla, and is probably as close to a Tesla insider as a non-company investor can be, wants Musk out of Tesla because he “abandoned” it for Twitter, and — more specifically — wants him replaced with an “executioner” like Tim Cook, whatever that means.
Is Tesla just part of a larger tech decline?
As mentioned above, Tesla is one of the worst-performing stocks in the S&P 500 (and it isn’t looking great on any stock index for that matter), but it’s not, technically, the biggest loser by sheer wealth annihilation. A Wall Street Journal report from last week is helpful in putting this in perspective. Five tech companies had lost a total of $3.7 TRILLION in market capitalization over the course of 2022, and those were Amazon, Apple, Alphabet, Tesla and Meta. But Amazon, Apple, and Alphabet, which all saw bigger losses than Tesla, all began with much, much more investor wealth to lose. In other words, all these pies had huge slices removed, but three of them were much bigger pies than Tesla to begin with. Amazon, for instance, remains about two-and-a-half times as big as Tesla by market capitalization.
It’s useful, then, to compare the other two on the Journal’s list of five big tech losers: Meta and Tesla. Both are considered tech stocks, and both are declining amid a broader downward market trend. But both Tesla and Meta had particularly rough years in the public eye, and happen to have had remarkably similar stock prices during much of that time. Tesla’s highest share price in 2022 was around $362, and Meta’s was around $332. They’re ending the year at approximately $113 and $116, respectively. And as I write this, Tesla’s total market capitalization is about $353 billion, and Meta’s is about $307 billion.
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That means Tesla’s performance tracked Meta’s fairly closely during Mark Zuckerberg’s annus horribilis, including Zuck’s laughable attempts to make the metaverse happen, and Instagram’s flailing attempt to become TikTok. Be careful not to read too much into this; comparing these two companies certainly doesn’t tell the whole story, yet it’s still a useful illustration. Yes, the whole tech world is trending downward at the moment, but suffering companies like Amazon, Apple, and Alphabet probably aren’t nearly as troubled as Tesla and its unlikely stock fellow, Meta.
Does Tesla’s stock decline have hidden causes?
Often lost amid all the hype around Tesla ever since Musk was hired as its CEO in 2008 (and somehow became its founder the following year?) is the fact that Tesla is simultaneously the world’s most valuable carmaker and a relatively small manufacturer of cars. Toyota, for instance, made about 833,000 cars in November of 2022. Meanwhile, Tesla declared that same month that its new goal was to manufacture just shy of 200,000 cars per month — less than a quarter as many as Toyota.
So it’s not that investors mistakenly think Tesla is a bigger operation than it really is. Instead, they’re betting that Tesla will become more like present-day Toyota someday, or at least that other people think it will, and they can sell their Tesla stock to those people. But recent events that have nothing to do with Twitter may have poured cold water on the version of the Tesla story that makes buying stock seem like such a brilliant idea.
During the Obama administration — which feels like a lifetime ago — Tesla was touted as a quirky up-and-comer in publications like The New Yorker as the manufacturer of “the only highway-capable E.V. now available,” and shouted out as an unlikely job creator in a presidential speech by Obama himself. It took a little over a decade for that level of buzz to put Tesla where it is today.
But today, Tesla has real competition. In the U.S., the cheapest Tesla is still somewhat of a status symbol in terms of its price, and most EV makers have a more practical option than a Tesla for budget-minded consumers. Meanwhile, in China, Tesla’s main competitor, BYD, sold almost 600,000 “new energy vehicles” in November, according to Barrons, all while Tesla recalled nearly that many of its Chinese cars in 2022 due to safety issues. BYD also became the world’s largest manufacturer of EVs over the summer.
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Musk, for his part, views Tesla not as one EV company among many, but as the world’s only fully self-driving EV company. Earlier this year, he said in an interview that self-driving was an “essential” aspect of Tesla, and that “it’s really the difference between Tesla being worth a lot of money or worth basically zero.”
That might have been too telling of an admission on Musk’s part, since even publications that are historically Tesla-friendly are deeply troubled by the reality of Tesla’s much-touted “Full Self-Driving” mode. Electrek called upon Tesla to release data refuting some damning reports, making it apparent that compared to other manufacturers’ driver assist modes, Tesla’s needs much more driver input. “We challenge Elon Musk to prove otherwise by releasing disengagement and driver intervention data,” wrote Electrek’s Fred Lambert.
Such criticism from the EV community can’t be good for anyone’s vision of Musk as some kind of automotive savior for the climate-change era.
Back in May, The New York Times published a thoroughly reported piece on Musk’s corporate strategizing methods. What emerges is a vision of a guy who acts on pure impulse, constantly shifting his priorities and rarely keeping an interest in one concept for very long. He also famously criticizes people to their faces for boring him.
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One Tweet by Leo Koguan rebuking Musk for getting distracted by Twitter seems to hint at Tesla’s growing pains. “Elon was the proud father” of Tesla, but, according to Kuogan, “Tesla has grown up.”
