Tesla Investors Aren’t Impressed With Elon Musk. Twitter Is One Reason Why
Is Elon Musk spending so much time on Twitter that he can’t manage Tesla well? Judging by the 6% drop in Tesla stock and an underwhelming Investor Day in Austin, he needs to do a better job.
What does it mean to manage Tesla well? The two keys are the same as managing any business well:
Exceeding investor expectations and raising guidance each quarter; and Betting on fast-expanding markets to sustain rapid growth as the company’s core businesses mature
Based on Tesla’s most recent financial report and Musk’s mushy Investor Day presentation, I think he could be doing a lot more to manage Tesla. His Investor Day performance was reminiscent of students who do their 5-page paper at the last minute and fill four pages with irrelevant material to meet the length requirement.
To do that, I think investors would be happy for him to cut his losses on Twitter so he can spend more time on Tesla.
Tesla’s Performance And Prospects
Although its growth rate fell short of earlier guidance of 50%, Tesla’s fourth-quarter revenue and profit exceeded investors’ lowered expectations. According to CNBC, Tesla’s revenue for quarter ending in December 2022 totaled $24.32 billion — 37% above the year-earlier amount and $60 million more than the estimate from Refinitiv, a financial market data provider.
Gross margins and operating cash flow both disappointed. “Automotive gross margins came in at 25.9%, the lowest figure in the last five quarters. Operating cash flow was down 29% from last year, and down 36% from last quarter, coming in at $3.28 billion,” noted CNBC.
Tesla predicted relatively light production of 1.8 million vehicles in 2023. On Tesla’s earnings call, an analyst asked why the production guidance was so light given that Tesla has been increasing production in its factories. Musk responded by saying that the forecast assumes “some friggin’ force majeure thing” that could interrupt production.
Yet Musk was optimistic about January’s production. As he told analysts, “Thus far in January we’ve seen the strongest orders year-to-date than ever in our history. We’re currently seeing orders of almost twice the rate of production.”
Tesla did not issue new guidance. In its earnings release, Tesla wrote, “We are planning to grow production as quickly as possible in alignment with the 50% compound annual growth rate target we began guiding to in early 2021.”
Meanwhile, Tesla’s stock had roughly doubled since the beginning of 2023.
Musk’s Mushy Investor Day Presentation
That was before March 1 — when Musk held Investor Day in Austin, Texas. Since ending February at about $208 a share, Tesla stock has lost 6% of its value. That is likely due to Musk’s presentation, which mostly lacked serious content.
While Musk did mention plans to open a fifth manufacturing plant in Monterrey, Mexico, there was little else to interest investors. They wanted details about lower-priced Tesla vehicle — the $25,000 Model 2 — which they believe could spur faster growth.
What they got was hours of discussion about how much the company’s new production platform would boost efficiency — with “no hint of what [Tesla] might actually build: no prototype, illustrative image or timeline,” according to the Wall Street Journal.
Analysts see Tesla losing market share to other automakers with models that are less expensive than Tesla’s current lowest-priced product — the $43,000 Model 3. As analysts from Mizuho Securities, a Japanese investment bank, noted: “[With seven models from other automakers priced below that,] cheaper competitor Electric Vehicles (EVs) coming to market [are] potentially dilutive to Tesla’s share of the US EV market.”
How Musk’s Twitter Is Hurting Tesla
Musk’s Investor Day presentation also reminded me of a student who starts their final paper a day before the deadline. With a few hours left before it is due, the student cuts and pastes several pages from somewhere else.
In Musk’s case that was his Master Plan Part 3 — a way to transition the global economy to a 100% clean and renewable sustainable energy economy by 2050. While a worthy goal, this took up time that could have been spent explaining how Tesla can grow faster.
This suggests that Musk is not spending enough time on Tesla. A February 23 lawsuit over his $56 billion Tesla pay package alleges that he is a “part-time CEO” of Tesla, according to BusinessInsider.
The lawsuit claims that Musk is “too distracted by his work at Twitter and SpaceX to properly manage” Tesla. Tesla’s third-largest individual investor, Leo KoGuan , said, “Elon abandoned Tesla and Tesla has no working CEO,” notes Business Insider.
Musk’s Twitter ownership is actively damaging Tesla’s appeal to customers. Once Musk bought Twitter in October 2022, Tesla customers became embarrassed to be associated with Musk.
A case in point is Tesla owner John Blumenthal who wrote in the Los Angeles Times, “Will people see me as a symbol of right-wing environmentalism, a living oxymoron?…Now that Musk has apparently swung to the far right — banning journalists from Twitter while reinstating neo-Nazis — I’m horrified to be associated with his brand whenever I drive anywhere.”
To be fair, there does not seem to be much evidence that many EV buyers have turned away from Tesla due to Musk’s involvement with Twitter. Indeed, leasing firm Octopus EV told the Financial Times that two of its Tesla customers — out of more than 1,000 — had switched to another make.
Bob Perkowitz, a onetime Tesla owner who also described himself as a former fanboy, said he hasn’t bought a new one because of “Elon Musk’s apparent right-wing views, his tumultuous Twitter acquisition, and his radical emphasis on free speech — which he fears will allow misinformation to spread more widely online,” according to Insider.
One analyst thinks Musk’s views are bad for Tesla’s brand. As Paul Krugman wrote in the New York Times, “Tesla is a brand whose customer base largely consists of wealthy cultural liberals who were attracted in part by Elon Musk’s perceived with-it persona. Musk’s public embrace of MAGA conspiracy theories is an almost inconceivably bad marketing move, practically designed to alienate his main buyers.”
Can Tesla Grow Faster?
Tesla’s growth has been impressive; however, its 37% result in the most recent quarter fell short of its 50% growth target.
To its credit, Tesla does intend to make considerable investments in its future growth. According to the Wall Street Journal, Tesla’s total price tag for its growth ambitions could total $175 billion.
While Tesla has spent “$28 billion to cement itself as the world’s most valuable car company, CFO Zach Kirkhorn said March 1 that Tesla could spend $150 billion more the achieve long-term goals such as making 20 million vehicles a year — over 15 times more than the 1.3 million it delivered in 2022.
While capital is certainly an important requirement for boosting a company’s growth, the most significant question that was not answered during Investor Day is: “What is Tesla’s strategy for sustaining 50% annual growth?”
While the analyst community expects a lower-priced vehicle to enable Tesla to grow faster, that assumption strikes me as ignoring the consumer appeal of competing EVs.
After all, Tesla’s U.S. EV market share is slipping — down from 70.5% in 2021 to 63.5% in 2022. “Tesla’s position is changing as new, more affordable options arrive, offering equal or better technology and production build,” according to S&P Global Mobility.
One such beneficiary is Ford. When Chris Romanowski, an Atlanta-area musician decided to buy an EV this year, he opted against buying a Tesla — finding the vehicle’s look ugly, and its ride bumpy and noisy. Instead, he bought a $70,000 Mustang Mach-E.
According to the Washington Post, Romanowski found it “more attractive and comfortable.” He thought the Mustang handed better and “his father had owned a candy-apple-red 1966 Mustang.”
Many rivals are piling in to the market. Ford — with about 7% share — is in second place; Kia is third with 5%; and Chevrolet and Hyundai control about 4% each. Meanwhile, “Mercedes-Benz and others are rolling out EV models that are challenging Tesla in the luxury market,” reported the Post.
Tesla investors need answers to key questions: What are the fastest growing EV market segments? What products does Tesla have in the works that target these markets? Are those products a better value — in terms of quality, performance, and price — than competing products? How will these new products boost Tesla’s growth rate to 50%?
If Musk were to step away from his Twitter bauble, perhaps he would have enough time to come up with compelling answers to these questions.
