Tesla quickly became the car that took Cinderella to the ball. A little over a year ago, it posted a record value on the stock market of $1.2 billion. At the time, with a share of just 1% of the global auto market, Elon Musk’s company was worth more than all the other listed automakers combined, which accounted for another 99%: Toyota, Volkswagen, Daimler, General Motors, BMW, Stellantis . , Ford, Ferrari, Hyundai, Nissan … Tesla was rubbing shoulders with the biggest technology companies – Apple, Microsoft, Alphabet and Amazon. A year later, the bubble burst. While Musk was caught in his acquisition of Twitter, Tesla lost more than 70% of its value. It has been hit by the global economic slowdown, the new outbreak of the coronavirus in China and growing competition. But, above all, investors have stopped seeing Tesla as a technology company. After all, it is a car manufacturer.
The latest blow has come with sales figures for the fourth quarter. Until now, Tesla’s biggest problem was meeting demand. However, that eternal waiting list has now passed into history. Recently published figures show that undelivered stock is piling up. The company cites this as an increase in the number of vehicles leaving the factory, but that sounds like a bit of a misnomer.
Tesla produced 439,701 vehicles and delivered 405,278 in the fourth quarter of 2022, well short of goals and expectations. During the first three quarters of 2022, the company was making more cars than it could sell. The company has launched heavy discounting initiatives, although this has angered consumers recently, especially in China, where consumers have staged protests at retail outlets.
Tesla is a success and growth story: investors pay for their future, rather than their existence. The Volkswagen Group, for example, posts three times as many sales and high profits but costs only one-fifth the price of an electric vehicle (EV) maker. The reason is its growth rate, its high margins and its huge market power. The question is how much of that ad Tesla will be able to corner.
Analysts at Goldman Sachs believe that the electric car market will grow strongly, and that Tesla is better placed than its competitors to take advantage of the boom while protecting margins through cost-cutting measures, but they list a number of threats: The risks in our thesis are related to the speed of EV adoption, car demand, increased EV competition, car cycle, autonomous car, key player risk, internal control area, and operational risks associated with Tesla’s high level of vertical integration.
What Goldman calls “significant human risk” is an elusive description for Musk. Tesla’s CEO spent 2022 first caught up in buying Twitter and then trying to put out the fires in his tumultuous reign at the social network. In the eyes of many observers, Musk has gone from a visionary genius to a ruthless executive. Moreover, he has aligned himself with the sympathies of the wings and has openly supported the Republicans in the United States, causing Tesla’s approval among Democratic voters to drop by more than 20 points, according to a recent poll by Morning Consult. It seems like a bad thing, because the former president Donald Trump and the Republicans in general ridicule the electric car, while the progressives are the biggest customers of Tesla. “The biggest risk the company has is its founder, Elon Musk, a man with an outspoken personality and thirst for the spotlight,” said Carlos Arenillas, a member of Panza Capital’s investment team.
Tesla’s competition is fast
Arenillas acknowledges that Tesla has a huge impact on the auto industry. “It was the biggest contribution to the expansion of electric cars, breaking the monopoly of the combustion engine and forcing the incumbents to react,” he said. But increasing competition from traditional manufacturers has become a major threat.
Experts believe that Tesla will not be able to protect its high market share. The United States provides a clear example. From 79% of electric car sales in 2020, the US will represent only 65% in 2022: S&P Global analysts predict that this share will fall to 20% in 2025. or better technology and product design. Because consumer choice and consumer interest in EVs is growing, Tesla’s ability to maintain a large market share will be a challenge going forward,” the company said in a recent statement. “As new EVs arrive, the reliability [to Tesla] they will be tested.”
That shows a big difference with the big technology companies: Google, Amazon, Microsoft and Apple have been able to dominate the market and protect very high market shares by large margins. Tesla will adjust the price of billions of dollars if it can close the car market of the future, but it does not seem to have a sustainable competitive advantage to do so, either in terms of the vehicles themselves, batteries or autonomous driving. It is likely that the market will remain highly fragmented, as is the case with traditional cars. Even if Tesla is in a unique position, it may not be easy for it to pay such a large valuation premium.
Analysts of Citibank explain that, if you subscribe to the idea that the car of the future brings new relevant markets, “traditional valuation methods become less useful, as long as the balance sheet remains strong,” as opposed to terminal or long-term value. to approach. But that approach “introduces potentially significant volatility” into estimates. Tesla is betting on the future. “There are too many unknowns to make a reasonable estimate,” Arenillas said.
Tesla shows its results on January 25. More than the numbers, investors are eagerly awaiting Musk’s appearance at the conference with analysts. Meanwhile, he weighed in on Twitter about Tesla’s decline: “The long-term fundamentals are very strong. The short-term frenzy of the market is unpredictable.”
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