Yves here. Wolf Richter gets credit for having said for some time that Tesla valuations were ridiculous given that all it did was make cars (oh, and some speciality batteries). The problem is when you are early to point out the obvious, the touts and true believers can still look like winners for a very long time
Tesla’s shares fell another 1.8% to $123.15 at the close on December 23, back to where they had first been in August 2020. They’re now down by 70.3% from the high on November 4, 2021, and thereby qualify for my ballooning pantheon of Imploded Stocks. For this honor, our heroes must have fallen by at least 70% from their crazy high in the era of money printing and consensual hallucination (data via YCharts):
The stock still has a PE ratio of 38, which is ridiculously high for a profitable automaker, but ridiculously low for an object of religious veneration, which Tesla used to be. It used to be run by Elon Musk, who used to walk on water. But walking on water turned out to be boring, and Elon is having too much fun goofing off over at Twitter for all to see, and he’s too busy tweeting goofy stuff and annoying people, including Tesla’s current or potential customers and shareholders.
So now, as people are coming out of consensual hallucination, they realize that Tesla is just an automaker, with lots of competition in the EV space, and that Musk no longer walks on water. They see that Tesla now has to do stuff that other automakers had to do for decades, like plastering big incentives on its vehicles to get them moving before year-end, talking about hiring freezes and lay-offs, and even, in a desperate move, touting possible share buybacks to try to boost its stock price. But the stock kept sinking.
And what’s the next shoe to drop? Is Tesla going to have to spend a few billion dollars a year on advertising, just like other automakers had to do for decades, in order to move the iron that is parked on vast lots across the country?
And people suddenly realized that Tesla, instead of being an object of religious veneration, is in the same overall industry – the auto industry – as other automakers, and that in terms of unit sales, this auto industry has stagnated for decades, interrupted only by deep plunges in between.
Turns out, EVs are merely replacing ICE vehicles, not adding to them, this industry being a tough zero-sum game, and every new competitor is taking a bite out of everyone else’s lunch, and the only way to increase revenues for the industry is by selling pricier vehicles year after year, which is what they have been doing, which is maybe why vehicle sales look the way they do (2022 new vehicle sales data through November; my estimate for December):
That’s the Real World for Automakers. And Tesla Is Joining It.
Tesla rattled these legacy automakers and got them off their lazy butts about EVs, and single-handedly revolutionized the auto industry. Musk was able to pull this off because investors saw him walking on water.
But now the legacy automakers have woken up from their stupor, and a bunch of new ones have piled into the market, and some of them actually have EVs out on the street, and investors have poured hundreds of billions of dollars into these EV makers, and into legacy automakers that are now chasing after Tesla with their own EVs.
Now, Tesla is having to do what other automakers had to do for decades: Pile incentives on its Model 3 and Model Y to move the iron. $7,500 plus “10,000 miles of free Supercharging,” if you take delivery of the vehicle by December 31, as it says on its website.
So there is a bunch of inventory, gone are the waiting lists, and you can just go and pick one out, and get a $7,500 credit plus 10,000 miles of free Supercharging?
This offer is an improvement over its prior offer of a credit of $3,750 for the Model 3 and Model Y.
So Tesla faces a situation: Congress passed legislation that gives $7,500 in incentives to buyers of certain EVs, and Teslas qualify, but those incentives don’t kick in until January 1, and some other automakers still benefit from the old $7,500 incentives that expired for Tesla years ago.
Business might have taken a serious hit as folks decided to wait till January 1 to get that federal $7,500, and so Tesla had to choose: Match it, or report a nasty surprise in Q4 deliveries that could tank its stock further?
And who knows what else might be going on. Maybe potential customers got turned off by Musk’s goofy tweets that you cannot escape even if you never ever look at Twitter because they get picked up everywhere in the media. And while these turned-off customers were moping about that, they found out that there are some other EVs out there now, even real 4×4 580-hp pickup trucks, while Tesla is still promising to eventually build one.
To sort of lower the intense selling pressure on Tesla shares, Musk, who’d said a gazillion times before that he’s done selling shares only to sell a whole bunch more, including $3.6 billion last week, which brought his total sales to nearly $40 billion, at ever lower prices, well, after Tesla shares had kathoomphed 8.9% during regular trading hours Thursday evening, he said at a Twitter Spaces audio chat, reported by Reuters: “I won’t sell stock until, I don’t know, probably two years from now. Definitely not next year under any circumstances and probably not the year thereafter.”
“I needed to sell some stock to make sure, like, there’s powder dry…to account for a worst-case scenario,” he said, according to Reuters. Twitter seems to come to mind in terms of that worst-case scenario.
No regulator is ever going to crack down on what Musk says or tweets. So he says and tweets whatever, no matter how goofy, which is fine for most people but not great for CEOs, and not great for shareholders if this goofy stuff goes in the wrong direction, as it has been doing recently.
Back in the day when he was still walking on water, and when consensual hallucination still ruled the trading day, his goofy tweets would cause the shares to spike. But now Tesla is becoming like other automakers, with the same problems, and what matters is the harsh reality of the auto market that has now woken up to EVs.