Tesla’s stock price has fallen drastically since the beginning of the year, particularly due to the recent actions of its CEO, Elon Musk. However, the acquisition of Twitter alone cannot explain such a fall in capitalization.
Shares in the electric vehicle manufacturer Tesla hit new 52-week low today just around $121 per share. As a reminder, earlier in the year, Tesla stock peaked at $400, not far from its peak a little earlier in 2021.
As a result, Tesla’s market cap has fallen nearly 70% in a year. Notably, that fall had caused Elon Musk to temporarily lose his position as the richest man in the world since he was replaced by Frenchman Bernard Arnaud, CEO of LVMH. So what explains such a drop in enterprise value?
Tesla investors didn’t like the Twitter acquisition
Since the announcement of Elon Musk’s takeover of Twitter, Tesla’s market cap has only declined. Musk sold billions of dollars in his Tesla stock to fund the Twitter acquisition. Since acquiring the company, Musk has regularly posted inflammatory tweets that Tesla investors don’t really appreciate.
There is every reason to believe that his chaotic management style and increasing division of his time is having an impact on his other businesses. According to many Tesla employees, Elon Musk’s increasingly unpredictable behavior on Twitter is increasingly damaging the car company’s sales figures.
Tesla sales could disappoint in 2022
Since a few weeks, Investors are concerned that Tesla’s sales and earnings prospects are clouding over. In fact, we could see that the automaker’s year-end sales were down.
Elon Musk’s company has nevertheless tried to get them back on their feet, mainly with offers several discounts for buyers who decided to have a vehicle delivered before the end of the year. Tesla has also been selling its Model 3 and Model Y models, which are available for immediate delivery, in Europe for a few days. The company has also tried to boost sales and deliveries offers customers 10,000 km of free charging in its Superchargers who will receive their new Tesla in December.
The EV maker will release its fourth-quarter shipment and production numbers just after the New Year they might be disappointingwarns Emmanuel Rosner, analyst at Deutsche Bank, in a new customer release.
The US economy could slip into recession next year
Aside from the above reasons, the main reason behind Tesla’s stock decline is the global economic situation. The Fed’s rate hike is particularly painful for automakers because their customers buy cars primarily on loans and leases. Monthly payments are therefore expected to rise as they are typically pegged to central bank interest rates.
The higher cost of borrowing also increases the price of cars, meaning manufacturers must lower prices to keep or attract more customers. Rate increases therefore tend to increase dampen demand and reduce automakers’ profits, which can weigh on their share prices. As a result, instead of investing in risky stocks, people prefer safe investments like savings accounts and government bonds.
After several years of inflation, the US economy could slip into recession next year, which would hurt auto sales. Musk said in a conference call on Twitter Thursday that he expects the economy to ” severe recession in 2023.
” I think there’s going to be more macro drama than people think right now ‘ he said, according to Reuters, adding that houses and cars ‘ disproportionately affected by economic conditions. He added that he will not be selling any more Tesla shares for the next two years.