Why Elon Musk Is No Longer Wall Street’s Darling

Could Wall Street’s love affair with Tesla CEO Elon Musk be over?

Six months ago, Tesla stock was up. The company was valued at $1.1 trillion — more than a dozen other major automakers combined — and announced plans for a proposed stock split.

Then Musk revealed that he has become the biggest investor in Twitter, followed shortly by an announcement of his plans to buy the social media company. Since then, things haven’t been the same for Tesla stock.

And while Musk’s efforts to buy Twitter — and then review the purchase — have raised investor concerns about the EV maker’s key CEO losing focus.

The company faced performance issues with delays and supply chain disruptions in China, causing production bottlenecks and leading to a disappointing third-quarter sales report on Sunday that fell well short of Wall Street’s expectations.

On Friday (30), shares were down 27% from April 1, the day before Musk’s investment was announced on Twitter. And they were down another 8% in Monday’s midday trading after the sales report.

Tesla’s critics have long argued that the incredible valuation of the stock – the stock has soared nearly 1,900% from when the company finally reached profitability in the fall of 2018 to its peak price in early April – has never been justified. And they say the current troubles are a sign of future setbacks to come with equities.

“In general, very bad things happen when production slows, prices fall, and the market is crediting you with a futures price for earnings multiples of 45.3 times earnings estimates,” said analyst Gordon Johnson, one of the biggest bears. of Tesla on Wall Street.

But the automaker’s Wall Street fans predict the company is still well-positioned as demand for electric vehicles grows.

“In a nutshell, this quarter was nothing to write home about and the market will be disappointed with the smoother number of deliveries in the third quarter,” said Daniel Ives, technology analyst at Wedbush Securities. “That said, we see it more as a logistical speed bump than the start of a smoother delivery trajectory.”

The company spent last Friday showing off its latest robots, and in a series of tweets over the weekend, the billionaire again promised that his robot business would transform the company’s sales and profitability. Ives said the company’s AI timing was bad for the stock valuation.

“Even as a visionary, I don’t think he’s reading the room. There’s a view that he’s not focused on what needs to be done now,” Ives said. “It’s not a great look for Wall Street when you do an AI day on Friday and miss a delivery on Sunday.”

But this is not the first time that the businessman’s comments have caused problems for the stock’s value in the last six months.

Two new factories that Tesla opened in Texas and Germany were described by Musk as “giant money furnaces”, burning billions in cash as they struggled to ramp up production. He even mentioned the risk of bankruptcy in an interview.

As if all of that wasn’t enough headwind for Tesla’s stock, Musk came out and said in June he had “super bad feeling” about the economy and announced plans to cut salaried employees.

“Musk has put fuel on a fire, and the Twitter fiasco has added to what has been a six-month nightmare for equities,” Ives said.

But the problems for the company’s shares are not unique.

Many of the other high-tech stocks have seen similar declines over the past six months. The market turned bearish as central banks around the world raised interest rates, sparking concerns about a possible global recession.

Apple shares are down 21% in the second and third quarters, while Alphabet, the parent of Google, is down 31%, and shares of Facebook parent Meta, dropped 39%. Amazon shares lost 31%.

This market environment makes it even more critical for Tesla to improve its execution as a way of assuring investors that stock value is not all smoke and mirrors.

“You have to execute to keep the faith among growth investors,” Ives said. “For the last two quarters, they haven’t lived up to that standard.”