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2022-12-30 at 16:41 #387616Nat QuinnKeymaster
As the truth of who Elon Musk really is becomes painfully clear, reality is dawning on investors in his electric vehicle company, Tesla. It isn’t, and has never been, worth that much.
‘Tesla shares come crashing back to earth,’ reads the headline on a Bloomberg wire service article on TechCentral.
Tesla’s share price had for years fluctuated between $12 and $24, before beginning a steep ascent in December 2019, which would culminate in staggering peak price of $407 on 31 October 2021. That, in September 2021, made him the on-paper richest man in the world.
At the time of writing, the price has collapsed. Still trading over $300 as recently as September, it is now worth a mere $118. Musk duly lost his position as richest person in the world again.
I have long argued that Musk is a jerk and a terrible human being. His companies have for years been frat-house cesspits of sexism and racism.
I have argued that much of his wealth is based on people believing his blatant lies and exaggerations.
Now, thanks to his acquisition of, and addiction to, Twitter, Musk has made it plainly obvious that he is erratic, paranoid, and an alt-right conspiracy nut with delusions of grandeur. He needs a psychiatrist, not adulation.
Much may be forgiven an eccentric entrepreneur during boom years when everyone is making bank, but those years are over.
The latest tech boom, which rose steadily from the ashes of 2009 and accelerated alongside Tesla’s runup to dizzying heights by the end of 2021, has shed more than a third of its value this year. The global economy in general is beset by stagnation, inflation, energy crises, and war.
In tough economic times, crazy CEOs make investors nervous, and prone to re-evaluate the fundamentals of the stocks they own.
In the case of Tesla, those fundamentals do not look pretty.
Late last year I wrote: ‘I’m a big fan of electric cars, self-driving technologies, and all that good stuff that the detestable billionaire Elon Musk is rushing to market, with the help of lavish government subsidies. I don’t think the technology is even remotely ready for prime time, however…’
Tesla investors have long laboured under the delusion that while other vehicle manufacturers couldn’t make electric vehicles work, Elon Musk was a genius who could.
To do so, he would re-invent solar power and make that work, re-invent both home- and grid-scale batteries and make those work, and re-invent computer vision and artificial intelligence and make those work. All while also running a company that makes reusable rockets whose ultimate purpose is to ferry those who can afford it, en masse, to the supremely hostile environment of Mars.
Don’t get me wrong. He has achieved a great deal, especially with SpaceX. I don’t mean to diminish those achievements. Some of them really are jaw-dropping.
But Musk has a long history of over-promising and under-delivering, such as when he said cars you can drive will eventually be outlawed in 2015, when seven years later Tesla still doesn’t have a functioning self-driving car, even in prototype.
Tesla has long had issues with build quality, even in its flagship models. It plummeted in the latest rankings of the non-profit Consumer Reports, which now ranks the Model 3 third behind electric rivals Ford Mustang Mach-E and Kia Niro and ranks Tesla overall 23rd in the overall ranking of best car brands. A Ford and Kia rank higher than a Tesla!
Investors have long valued Tesla as if it were a technology company, but it isn’t. It is a car company. Its technology vision has stagnated, with self-driving being blamed for accidents and its ‘full self-driving’ labels soon to be outlawed as ‘deceptive marketing’.
The failure to make progress on what was supposed to be Tesla’s killer application is largely due to Musk’s insistence that self-driving technology can be based entirely on computer vision. Meanwhile, self-driving rivals such as Cruise and Waymo have leapfrogged it and are now way out in front.
Tesla might once have had a lead in electric vehicle manufacturing, and it certainly did a lot to define the space, but rival motor manufacturing companies have learnt from Tesla’s mistakes, and have largely caught up or overtaken it, both in the quality of their electric vehicles and the software that drives them.
Most of the majors have launched electric vehicles in recent years, including Audi, BMW, Buick, Cadillac, Chevrolet, Ford, GMC, Honda, Hyundai, Jaguar, Kia, Lamborghini, Lexus, Lotus, Maserati, Mazda, Mercedes-Benz, Mini, Nissan, Pininfarina, Porsche, Volkswagen, and Volvo.
Another clutch of all-electric startups have launched vehicles too, including Aspark, Bollinger Motors, Byton, Canoo, Faraday Future, Fisker, Genesis, Lucid, Polestar, Rimac, and Rivian.
It is a hotly contested market now, and one in which Tesla’s cars are simply no longer the best.
A lot of the associated businesses, such as solar panels and batteries, have not taken the market by storm, either.
All this proves that Tesla ought to be valued just like any other motor manufacturer, which portends a continued decline in its share price. In 2021, its price-earnings ratio was just under 70. In 2022, its estimated PE ratio was 31.
Toyota’s PE ratio is 9. General Motors trades at a PE of 5.5. BMW at 2.6. Mercedes at 5. Kia at 5.5. These are Tesla’s rivals. If we’re generous, we can put Tesla at the top of the pile, but that still means its stock is three times overvalued.
Add to all this the idiocy of having used his own Tesla stock to acquire Twitter for $44 billion, which is bleeding cash and will have to be propped up by either raising capital from blind and deaf investors who aren’t on Twitter to see Musk make an ass of himself, or by turning even more of his Tesla shares into collateral or cash, and the outlook for Tesla is extremely poor.
Musk has lost his veneer of maverick genius. He has lost credibility on Wall Street. He is overstretched as chief rocketeer, chief twit, and chief second-rate car salesman. He has become unhinged and reckless.
The best thing that could happen to Tesla is for Musk to step down and sell out. Until then, it will continue to prove long-standing critics of its valuation right, and its establishment rivals will eat its lunch.
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