3 Factors Explaining Why Investors Are Throwing Tesla Stock In The Garbage

3 Factors Explaining Why Investors Are Throwing Tesla Stock In The Garbage

Telas stock

Elon Musk, by Daniel Oberhaus (2018), https://www.flickr.com/photos/163370954@N08/ https://creativecommons.org/licenses/by/2.0/

Tesla stock is on track for its worst month, quarter and year in the company’s history as foreign and domestic challenges multiply for the electric vehicle maker and the economy heads into an impending recession.

With CEO Elon Musk’s energy apparently transferred to his latest acquisition, Twitter, investors are bailing on the automaker. Tesla stock was down 11 percent on Tuesday, Dec. 27 alone and it’s down 44 percent so far in December.

Tesla has bypassed Facebook parent Meta to become the worst-performing stock in 2022 among the most valuable tech companies.

Here are three reasons why investors are throwing Tesla stock in the garbage

Losing confidence in Elon Musk

Musk’s tweets may be eroding investor confidence in his ability to steer Tesla. Since buying Twitter for $44 billion on Oct. 27, Musk’s leadership of his newest acquisition is widely considered chaotic.

Since Musk took over, Twitter has seen massive layoffs, increased racist hate speech, advertisers cutting their budgets or leaving the platform, and previously banned accounts reinstated. Although he vowed a commitment to free speech, Musk then suspended Twitter accounts he didn’t like and created a policy forbidding users from linking to certain competing social media platforms. He subsequently flip-flopped on policy changes. He also polled his followers asking if he should step down as head of the company (the majority voted “yes”) and promised to honor the results.

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“When he’s running Twitter on Twitter and people are getting this idea, blow-by-blow, of how he makes his decisions, maybe some of that confidence in his ability to be able to drive Tesla through this impending recession that we are going to see possibly in 2023, that faith is now getting shaken quite a bit,” reporter Esha Dey said on Bloomberg TV.

Analysts say Musk needs to rebuild investors’ and board members’ confidence, BBC reported.

“Musk is viewed as ‘asleep at the wheel’ from a leadership perspective for Tesla at the time investors need a CEO to navigate this Category 5 storm,” wrote Webush tech analyst Dan Ives in his newsletter. “Instead Musk is laser-focused on Twitter which has been an ongoing nightmare that never ends for investors.”

Fears that demand is waning for Tesla vehicles

Electric vehicles accounted for 5.6 percent of all new vehicles sold in 2021, up from 1.4 percent in 2019, according to Kelley Blue Book. The overall U.S. market share for Hyundai is about the same as the market share for electric vehicles, according to Cox Automotive, which owns auto-related websites and firms.

“For the longest time, the majority of the EVs on the road were Teslas, and they still get the lion’s share of sales, but they’re now hardly the only game in town,” said Matt Degen, an editor at Cox Automotive.

The Mustang Mach-E, which came on the market in 2021, was the first electric vehicle to take a notable chunk of Tesla’s still-dominant EV market share, CNN reported.

Tesla is struggling to attract buyers in China and in North America. Its EV market share shrunk from 71 percent in 2021 to 65 percent through the third quarter of 2022, according to S&P Global Mobility. This was partly due to competing automakers breaking into the under-$50,000 price range.

“Tesla was the only game in town, the only game in the world, if you wanted to buy an electric vehicle and that’s not necessarily the case here in 2022, and certainly not going to be the case over the next two-to-five years,” Romaine Bostick reported for Bloomberg TV.

Reduced demand in China forced Tesla to offer incentives in mainland China for December auto sales earlier in December. Last week, the company expanded discounts in North America for buyers of Model 3 and Model Y electric vehicles.

“Tesla is offering pretty hefty and pretty rare discounts on its cars in the U.S. … all this is really fueling concern that demand is or may be faltering for EVs, which are actually more expensive than typical gas-consuming cars,” Dey said.

Gas prices have fallen significantly in recent months, which could reduce the urgency some drivers feel to make the switch to electric in 2023, CNN reported.

Supply issues: Tesla production halted temporarily in the Shanghai plant

The automaker has paused production at its Shanghai facility for a week as Chinese workers endure a massive increase of covid cases. When Tesla’s Shanghai plant reopens in January, it will do so for just 17 days — that’s less than Tesla’s established practices, Reuters reported.

The Shanghai plant accounted for more than half of Tesla’s output in the first three quarters of 2022.
Based on forecasts for Q4, analysts expect output to fall short of its goal by about 45 percent, Benzinga reported.

News of the temporary halt in the Shanghai production plant exacerbates Tesla’s problems.

“‘Reckoning’ is a word that I’m hearing a lot from my sources, both bulls and bears,” Dey reported for Bloomberg. “It’s definitely a reckoning for the bulls who knew that Tesla is a stock that was priced for perfection and the picture of perfection is definitely seeing some cracks, more than cracks, especially the news that we had over the long weekend about the temporary halt in the Shanghai production plant.”