US equity markets are off nearly 25% YTD; Tech-heavy Nasdaq off 32%; But the poster child for the past few years has been Tesla ( TSLA ), which is down 38.5% YTD and 46.9% off its 2021 high.
From a fundamental perspective, Tesla is doing pretty well: In the third quarter, Tesla sold a record 343,000 vehicles.
They have one advantage over traditional automakers: the ability to quickly reprogram the chips’ firmware. This gives them flexibility when a particular chip becomes unavailable. “Tesla’s strategic use of semiconductors has reduced the number of chips needed to manufacture vehicles” reducing lead times, and allowing the firm to build more cars with fewer chips.
The result is that semiconductor shortages appear to be less of a problem for them than for other companies.
Which raises the obvious question: Why are stocks performing so poorly?
Everyone seems to have their favorite theory. I have a few ideas, none of which are definitive, but perhaps together they explain some price action: Elon Musk’s distraction from the Twitter acquisition (and lawsuit); The company’s valuation, and lastly, competition from legacy car makers.
Let’s spend a few moments on each:
1. distraction: There can be little doubt that Elon Musk is a generational entrepreneur. His success with PayPal and Tesla makes this clear. He is also the founder of SpaceX. As with Starlink Satellite Internet (operated by SpaceX), this is certainly a time-consuming undertaking. All of these ventures were before Elon ran into Twitter, which soon unraveled and became a time-consuming litigation mess.
The concern here is that if the purchase is successful, Twitter will be a time-consuming distraction. It’s no coincidence that the day after Twitter’s board approved Musk’s takeover bid, TSLA fell 12%; After 3 OctoberrdWhen Musk announced he was withdrawing the lawsuit, Tesla’s stock fell more than 9%.
2. Price run-up/evaluation: Investors know how much Twitter’s Tesla stock has risen in two years in anticipation of a +1160% addition to the S&P 500; However, I doubt these people know that this giant 2020-21 run-up came on top of an almost identical explosion in TSLA stock price of +1140% over the previous 7 years.
These kinds of gains leave no room for error…
3. competition: Many people were concerned that competition from companies like Lucid and Rivian was a potential threat to Tesla but in terms of actual competition for sales, it’s more about legacy automakers like Hyundai, Ford, VW/Porsche/Audi and Mercedes. .
Tesla had a huge lead in technology software and mindshare and they are ahead of the competition in this field. However, the past 5 years have given ICE manufacturers a chance to play catch-up.
in the past:
the ferrari Tesla (January 6, 2022)
2021’s Surprising Laggard: Amazon (January 5, 2022)
7 Car Market Trends (December 23, 2021)