Tesla and the operational risk called Elon Musk Anti-monarchy focuses on the coronation of Charles III show

It’s not easy for the people who assess the development of car manufacturer Tesla full-time. The analysts and market observers closely monitor how many electric cars the Texan company sells quarter after quarter. They are racking their brains over how a new large factory in Indonesia could affect production capacity. They wonder for which drivers an electrically powered pick-up could be a useful vehicle. At some point, they come to a numbers-based judgment as to whether the company is reasonably valued on the stock exchange. And in the end, Elon Musk brushes off all these considerations with a few flamboyant promises. At least that was the case in the past.

Tesla stock was what Aswath Damodaran calls the ultimate story stock. The New York University finance professor means a security whose price is not calculated based on sales figures and profit margins, but based on a future story that investors can believe in. If there was any doubt about whether Tesla would meet its ambitious sales targets, Tesla boss Musk in particular provided narrative distraction. He announced new software and models that were far from finished, sold flamethrowers as a publicity stunt or even promised to take the company completely off the stock exchange – a ruling, incidentally, for which he is currently being held in court.

Tesla has now published its operating figures for the past quarter and for all of 2022. And Musk is trying to tell a new story. The question is whether investors should still buy it from him.

The figures show that the company is not doing badly. Tesla increased its revenue by 51 percent to $81.5 billion last year. Profits more than doubled to about $12.6 billion. Hardly any car manufacturer succeeds in producing e-vehicles as efficiently as Tesla. The operating margin was relatively high throughout the year at 16.8 percent, but fell from the third to the fourth quarter. The company delivered 405,278 cars at the end of the year. A good value, but Tesla missed its self-imposed goal of increasing shipments by 50 percent for the full year. Despite these good annual results, the future of the company is uncertain.

The stock price anticipated this concern last year — with an unprecedented crash. Tesla stock has been surging for years, reaching an all-time high of over $400 per share in November 2021. It has declined almost continuously since then. By now, the company had lost about two-thirds of its market value. As a result, the assets of CEO and major shareholder Elon Musk sometimes shrank by 200 billion dollars. The Bloomberg news agency reported that a single person has never lost so much wealth. Which of course does not alter the fact that it had also grown in an unprecedented way in previous years.

Part of that was Musk’s own fault. He was distracted by his obsession with Twitter. At first he wanted to buy it, then he didn’t, then he was more or less forced to. He also paid the bill for the social network, a whopping $ 44 billion, with money he earned from the sale of his Tesla shares. In total, he has sold $39 billion worth of stock since Tesla’s recent all-time record. A fact that should not necessarily have supported the price.

Investors feared his attention would now be even more divided between Tesla and space company SpaceX – and they were right. Musk has turned his hobby of trolling Twitter into a full-time job and has become the leading advocate for online freedom of speech. All this rubbed off on the Tesla course. It is not for nothing that the quarterly reports under the heading of operational risks always contain the sentence: “We are highly dependent on the services of Elon Musk.”

Added to this was the macroeconomic situation, which has not allowed a technology-driven company like Tesla to flourish on the stock market over the past twelve months. The war and inflation caused interest rates to rise sharply. Demand for cars in general also leveled off. Tesla still managed to produce more. It so happened that Tesla buyers suddenly no longer had to wait months for their models to arrive and the warehouse to be full. Another problem is that competition is getting tougher: interested parties now have a much larger choice of electric alternatives – there are also useful and available electric models from Volkswagen or the Chinese manufacturer BYD.

Musk follows a dumping strategy

For investors, the question now is whether the bottom has been bottomed out and the valuation will rise again – or whether the market value will shrink back to normal. After the big crash, the share had made a small catch-up in recent weeks. Analysts estimate the fair value of Tesla stock to average less than $190 after full-year earnings are released. That’s significantly higher than today, but significantly lower than when Tesla was worth the 12 largest automakers combined on the stock market. After the publication of the figures, the price rose by five percent in aftermarket trading.

The arguments for a Tesla story with a happy ending lie on the one hand in the macroeconomic environment: if there is no major economic crisis, people will continue to buy cars. Central banks will not raise interest rates any further and may even lower them. There are also subsidies for electric cars in the US. All this helps Tesla. Musk and Tesla are also optimists, who believe that autonomous driving will become possible in the not too distant future and hope that the cybertruck will attract new groups of buyers. The cheap production is also a factor that tends to support price development for analysts.

However, there are also plenty of arguments against an overly rosy future. According to a new report from the Financial Times, the company has slashed its prices. Vehicles have become one fifth cheaper in both Europe and the US. Potential customers in Germany recently found advertising messages in their mailboxes, according to which the company also offers discounts here. In China, Tesla is also discounting its vehicles, much to the dismay of customers who had bought at higher prices.

Industry experts such as Ferdinand Dudenhöffer see great risks in the discount battle. “Elon Musk is now following a dumping strategy,” said the director of the Duisburg Center for Automotive Research. “He’s trying to push others out of the market because he can produce at a lower cost.” In the long term, this will reduce the high margins. Musk is therefore condemned to growth, says Dudenhöffer. His outlook: “Last year was a good year for Tesla. The next ten years are more critical.”

Now on

And Musk himself? The Tesla boss was optimistic after the publication of the figures with investors. Orders came in in January that were significantly higher than what could currently be produced in its gigafactories. “We think demand will remain good despite a likely slowdown in the auto market,” Musk said. There is still a “large number of people who want to buy a Tesla vehicle but can’t afford it”.

How the stock actually performs depends on the story investors want to believe. Is Tesla essentially a technology company that sells an extremely large number of cars at a low cost? Then the current price is too low. Is the company just another automaker pricing itself dead for market share with growing competition? Then the price can even go down. The image that investors have of the CEO also determines whether the optimistic or the pessimistic story is more credible to them: do they see Elon Musk as the savior of the car industry? Or a Hallodri that can’t be trusted? In an interview with the American television network CNBC, New York finance professor Aswath Damodaran put it in a nutshell: “You are no longer buying a company, but a person.”

This article was first published on Zeit Online. Watson may have changed the headings and subheadings. Here’s the original.