The electric car company is more valuable than its rivals because of investors’ confidence in Elon Musk’s vision, but his ownership of Twitter and increasingly erratic behavior are eroding it.
Massive job cuts, employee departures and fleeing advertisers have marked the first month of Elon Musk’s ownership of Twitter. Whether his sledgehammer restructuring saves or kills Twitter, the ill-advised purchase is having an undeniable impact on Musk’s most prominent company and the source of most of his wealth: Tesla. With shares in the electric car maker plunging, observers are questioning Musk’s near-mythic status as the world’s preeminent tech entrepreneur.
“We definitely see cracks in that facade. Everybody’s asking: Does he know what he’s doing? True believers say, ‘Give it a few more months. You’ll see. He’ll turn Twitter around,’” says Olaf Sakkers, a general partner at RedBlue Capital, which invests in mobility startups. “I think a lot of people are starting to really doubt that. And those cracks are a risk because cracks can get bigger.”
His questionable judgment and recent actions have turned him into a punchline for late-night TV hosts Stephen Colbert, Jimmy Kimmel and John Oliver who’ve relegated Musk to a list of divisive figures that includes Donald Trump, Marjorie Taylor Greene, Alex Jones and Kanye West. At the same time, Musk has been using Twitter to mock or lash out at politicians, mainly Democrats, including President Joe Biden, Representative Alexandria Ocasio-Cortez and Senator Ed Markey, seemingly for his own amusement. But Markey’s response underscored why that wasn’t the wisest move.
“One of your companies is under an FTC consent decree. Auto safety watchdog NHTSA is investigating another for killing people. And you’re spending your time picking fights online,” Markey tweeted. “Fix your companies. Or Congress will.”
It’s a sharp contrast from when writer Ashlee Vance gushed that “Musk’s ready willingness to tackle impossible things has turned him into a deity in Silicon Valley” in his 2017 book, Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future. It celebrated Musk’s remarkable achievement of keeping Tesla alive to spark an electric car revolution that’s since spread across the global auto industry and his equally implausible success in turning SpaceX into the world’s most important private rocket company.
“We definitely see cracks in that facade. Everybody’s asking: Does he know what he’s doing?”
It was those improbable triumphs that convinced many Tesla investors and fans that Musk was no ordinary entrepreneur and that his companies were mission-driven, committed to ending the world’s oil addiction and even colonizing Mars. Tesla’s growth and expanded EV lineup pushed the company’s valuation and price-to-earnings ratio into the stratosphere and far beyond that of traditional automakers—peaking at more than 1,300 times earnings—well before it became consistently profitable. Currently, it’s fallen back to Earth at about 51 times earnings, compared with P/Es for General Motors and Ford of around six times earnings. Tesla remains the world’s most valuable automaker at $530 billion—down from more than $1 trillion in October 2021.
But Musk’s biographer didn’t foresee his failures: Tesla’s troubled purchase of Musk’s SolarCity ahead of the solar power company’s potential bankruptcy; his inability to turn the science fiction-inspired Hyperloop concept into anything more than single-lane car tunnels to ferry tourists beneath the Las Vegas Convention Center at low speed. His inexplicable tweets about taking Tesla private in 2018 and reckless rants against Covid-19 lockdowns at the peak of the pandemic in 2020 also didn’t help his reputation. Similarly, his decision to put Tesla’s first European plant, Giga Berlin, in a region of Germany at risk of a sustained water shortage that’s likely to constrain the multibillion-dollar factory’s production capacity, in retrospect, seems unwise. Meanwhile, his recent advocacy of Optimus humanoid robots that will someday work at Tesla plants seems, at a minimum, unrealistic.
Adding his Twitter problems to the mix isn’t inspiring confidence.
“This is a potential brand deterioration for Musk and Tesla as the Twitter circus show moves on. It’s a fork in the road for Musk and Twitter,” Dan Ives, an equity analyst with Wedbush Securities, told Forbes. “If he somehow cuts 70% of Twitter’s workforce, keeps advertisers, and turns this trainwreck around, his genius turnaround reputation would be cemented further. However, the PR issues around Twitter and the way Musk has handled this leave a stain on his brand for now and for Tesla’s as well. It’s a clear overhang on the stock.”
Tesla, which underpins Musk’s standing as the world’s richest person, has seen its market value drop 26% since Oct. 28, when the CEO of both the world’s leading electric vehicle company and private aerospace giant SpaceX, completed his purchase of Twitter for $44 billion. It’s down about 58% this year. By comparison, GM is up 1% since Oct. 28 and Ford has gained about 6%, though both automakers’ shares are down by about a third this year.
Twitter isn’t the sole source of the recent weakness in Tesla shares. The carmaker is particularly reliant on China for much of its profitability, and as equity analyst Jeffrey Osborne wrote in a recent research note, “weakening macro data in China is leading to concerns on Tesla,” which has been lowering prices there to boost local demand.
Investors are taking notice of these weaknesses. For example, hedge funds “seem to be shifting to a negative bias on (Tesla) stock,” Osborne said, citing conversations with finance officials. They are “increasingly concerned about a loss of focus for CEO Elon Musk with his Twitter acquisition,” he said.
Musk has set an audacious goal for Tesla to boost its sales to 20 million vehicles annually by 2030. It looks like a stretch for a company that has yet to sell 2 million a year — and is double the annual volume of global giants like Toyota and Volkswagen. Undoubtedly, Tesla’s sales will keep growing, though its inability to offer an affordable electric vehicle, priced from about $30,000, is a limiting factor. Currently, the average Tesla retails for $67,800 in the U.S., according to Kelley Blue Book.
“This is an individual who has demonstrated a total lack of grace, has no guardrails around him and is going to see his wealth probably cut in half.”
Curiously, U.S. consumer interest in buying Teslas also dipped in 2022’s third quarter, based on traffic to Kelley Blue Book, the brand’s first such decline. “Shopper interest in Tesla plummeted quarter over quarter,” according to the auto retailing site. “Tesla fell to sixth from fifth in the rankings of most-shopped luxury brands, with 12% of all luxury shoppers considering a Tesla – down 3 percentage points from Q2 2022 and notably the largest quarter-over-quarter loss for any luxury brand.”
That decline in consumer interest could be an anomaly and improve in the year’s remaining months. But it may reflect the reality that companies including General Motors, Ford, Hyundai, Kia, Audi, BMW, Mercedes-Benz, Rivian, Lucid and many more are bringing compelling new electric vehicles to the market that compete directly with Tesla—and in some cases offer features or pricing that are more compelling.
It’s also reasonable to suspect that as Musk’s public image grows less positive due to his handling of Twitter, as well as his willingness to express partisan political views, holds real risk for the Tesla brand, since he has made himself synonymous with it.
“I think we’re seeing the unwinding — not of a company but the unwinding of a person,” Scott Galloway, podcaster and professor of marketing at New York University’s Stern School of Business, said in a recent CNN interview. “Every ridiculously mean, nonsensical, irrational move he makes is somehow seen as chess, not checkers, we’re just not privy to his genius.”
“This is an individual who has demonstrated a total lack of grace, has no guardrails around him and is going to see his wealth probably cut in half,” Galloway continued. “You can’t deny his incredible accomplishments, but now he’s running three different companies. So this notion that there is a super being, I have found that that notion never proves out.”