04/05/2023
Welcome to a new series, where we ask our Chief
Analyst Neil Wilson to tell us how he really feels about key stocks, market moves, the
economy and maybe even crypto.
None of Neil’s comment are advice. You might agree.
You might disagree. You might want to throw things at him. It’s up to you.
We’re
kicking off this series by asking him what he thinks about possibly the most controversial
stock in the world…and the even more controversial guy in charge.
*
“My life has been based on total honesty.
Everything you say is totally honest. You don’t hide things. You don’t make things
up. You don’t make yourself seem better. And a lot of honesty disappears when you look at
Elon Musk and Tesla.” – Apple Founder Steven Wozniack. In my opinion,
Tesla is a cult stock. It’s success so far has had little to do with the company, and
everything to do with Elon Musk’s ability to create a cult-like following. I think the stock
is overvalued, and I wouldn’t have it in my portfolio if you paid me. Alright Neil, get
off the fence. Hey, this is an opinion piece! I’m not here to make friends. But, before
the Musk fanboy out there start hurling abuse at me, let’s get the following out of the way:
- Musk is obviously very intelligent in an engineering and technical capacity.
- Musk has a serious ability to persevere and to bounce-back. He seems completely
unburdened by failure. - Musk’s work ethic, complete with 100-hour weeks, is undeniable.
And as far as I’m concerned, his biggest achievement is one no-one really seems to talk
about: Musk found a way to make electric cars cool. Even desirable. Up until Tesla appeared,
electric cars were about as sexy as filling in a tax return. But there’s no denying, the
Model S was, and still is, a real looker. So, that’s the niceties dealt with. Let’s dig into
those things Musk fans like to avoid: the facts.
Tesla’s wounds are starting to show
March’s earnings figures
don’t make for particularly pretty reading. Earnings per share and net income both fell more
than 20% compared to the year-ago quarter, and the share price fell nearly 10% as a
result
. Not terminal. The price will rebound at some point, I’m sure,
and it’s still up more than 40% this year. But look at the fundamentals, and you’ll see a
different picture: 
As I write this, the share price is more than 50% off
the 2021 peak… And yet Tesla’s P/E was still above 50 for most of
April
. (For some
perspective, BMW and Hyundai are just under 4.) In other words, Tesla investors are
still piling in, with the hope of massive returns in the long-term. Which is useful, because
that’s what Elon’s banking on, too. We’re not talking about ‘jam’ tomorrow. We’re
talking about the whole cream tea. In January, Tesla announced a global price cut
of up to
20%
.
This
was the first of 6 cuts so far in 2023. Musk said, “The desire
for people to own a Tesla is extremely high. The limiting factor is their ability to pay for
a
Tesla
.” He’s prepared to sacrifice short-term
profits to maintain Tesla’s market share in an ever-growing EV market. (And it is growing,
no doubt about that. Global sales of EV cars was up 60% in 2022, according to the
WEF
.)
But… That market share seems to be disappearing Tesla’s EV market share in Q1 this year sat
at
62.4%
. Impressive, you might think. But again, take a look at the
longer-term. Between 2018 and 2020, Tesla had about 80% of the EV market
share
. By the end of 2022, it was just under
65%
. Right now, as I said, it’s at 62.4%. Why? Competition. Executive
analyst at iSeeCars, Karl Brauer, said “Tesla’s longtime role as the only premium EV has
shifted to one of many options, with additional EVs arriving in showrooms every
month
.”
According to AutoNews, non-Tesla EV registrations are up 151%, with Chevrolet, Ford and
Volkswagen all offering increased production and more affordable
vehicles
.
S&P Global commented “Given that consumer choice and consumer interest in EVs are
growing, Tesla’s ability to retain a dominant market share will be challenged going
forward.” Tesla has been virtually the only serious player in the EV game for a
long time. In 2023, that’s changing. And for the first time, there are creeping signs that
Tesla might finally be getting ahead of themselves. The Wall Street Journal recorded that in
Q1 of this year, Tesla produced nearly 18,000 more vehicles than it delivered to customers,
and the days of supply increased five-fold to
15. One Twitter user shared a few images of hundreds of brand-new Tesla vehicles, stored
in a random parking lot. As you may know, Tesla is already being out-sold in China by both
BYD and
Volkswagen. And market share isn’t the only problem Tesla’s dealing with right now.
Tesla’s safety problems tend to grab the news. A few highlights:
- They finally began delivering their promised semi-truck in December last year (it was
first announced in 2018).
Since then, 35 trucks have been recalled due to a potential emergency brake
failure. - Tesla has been selling it’s ‘Full-Self Driving’ software to owners for
between
$5-$15k
a pop. This year, all 363,000 vehicles using the software
had to be recalled due to a US government agency saying that in ‘rare circumstances’, it
could put drivers in
danger. - There are rumours on Twitter that older Model S vehicles are suffering battery issues,
with a potential $22k repair the only
option.
There are other ongoing investigations for seatbelt problems,
steering wheels coming loose, and even a bizarre tendency to hit stationary responder
vehicles. According to Forbes, since January 2022, more than 4,000,000 Tesla vehicles have
been
recalled. First, the obvious point. All manufacturers deal with recalls and safety
issues. The problem is, because of Musk’s ability to get everyone talking about him,
Tesla’s problems always seem to hit harder in the news. Over time, these stories can erode
investor confidence. Which brings us away from the business, and onto the other half of the
story.
“Pay no attention to the man behind the curtain”
“I
sell the things you need to be, I’m the smiling face on your TV…
I exploit you,
still you love me… I tell you one and one makes three…
I’m the cult of personality.”
– Living Color, ‘The Cult of Personality’.
*
If Elon Musk is a genius, it’s in marketing himself.
Not unlike another famous tech entrepreneur. Apple co-founder Steve Wozniak puts it as well
as I can:
“I put [Musk and Steve Jobs] in the category of
having the ability to communicate, and wanting to be seen as the important person and be
like a cult leader. A lot of people will follow them no matter what they
say.”
Musk’s has spent years painting a picture of himself as a self-made
billionaire, an effective businessman and a genius with intelligence levels far above the
rest of us. His fanboys still believe that. Question Musk’s genius and you’re a ‘hater’.
Like the previous incumbent of the White House, Musk’s fanbase are rabid. Nothing I write
here is going to change their minds. But what about those investors in the middle? The ones
who aren’t in the cult. The ones who’ve invested in Tesla because they see a good
company, delivering premium products, run by a hyper-intelligent, capable CEO? I think
they’re becoming Tesla’s biggest problem. Because over the past year, Musk has pulled back
the curtain further into his world… And what we’re seeing doesn’t look much like a wizard. “Successful
failures” After the Space X rocket explosion last month, Garrett Reisman,
astronautical engineering professor at the University of Southern California, said:
“This is a classical SpaceX successful
failure,” It’s not the first ‘successful failure’ we’ve seen from Musk in the last
year. First, he was strong-armed into buying Twitter after trying to pull out of the deal,
and had to take on just under $13bn of debt to help pay for
it. Since then, he’s cut the workforce from just under 8,000 to about
1,500. According to The Information, 500 top advertisers have left Twitter since Musk
took
over. (He claims ‘most of them’ have come back
since.) This, combined with the yearly $1.5bn charge on the debt he took on, left
Twitter with a $3bn negative cash flow at
one
point. His biggest move to increase revenue was to levy a charge for the ‘blue tick’,
which has largely been considered a
disaster. (Since then, some celebrities have had their blue ticks restored at no
charge.) Musk himself confirmed last month that “we just revalued the company at less
than half of the acquisition
price”. The banks that lent Musk the money face “potentially large losses”
according to
Reuters. Of course, the argument is the same as it is with Tesla. Long-term success. A
pay-off in the future. Difficult decisions now for the reward later. But if you subscribe to
that viewpoint, I’ve got one question about the hyper-intelligent, genius CEO… Has anything
he’s done since he bought Twitter made it better? Or maybe he’s missing government
subsidies… Since 2003, Space X has picked up around $15.3 billion from the US
government contracts, according to the government’s own
figures… Tesla took in ‘certain payroll related benefits’ from the $600bn early stimulus
package during the pandemic, and didn’t specify dollar amounts in their filings… It also
received a $465 million preferential loan from the US department of energy in 2010… And
Tesla has also benefited substantially from tax credits given to customers who buy EVs, with
one estimate indicating this has been worth $3bn in total to Tesla. If you’re wondering if
tax credits really made that big a difference, consider this: In 2021, when a new tax credit
bill was tabled, Musk said
“We don’t need the $7,500 tax credit. I would say just can this whole bill.” This
Wednesday, though, an unnamed Tesla executive – the company still refuses to name executives
on their calls – said,
“We view the passing of the Inflation Reduction Act as a significant boost towards
accelerating our mission while also scaling the battery supply chain at large in the United
States.” Musk has always made his views on stimulus pretty clear: 
What’s made him change his tune? Breaking the
spell I think for the first time, Tesla is starting to look just like another car
company. And Elon Musk is starting to look like just another CEO with a knack for
self-promotion. He’s a “self-made
billionaire”, whose father owned a diamond mine and ‘couldn’t close the safe’
because there was so much money in
it. He’s taken billions from the US government, but opposes stimulus. He’s the ‘architect
of
tomorrow’ but can’t see that advertisers in 2023 can be scared off by instability.
He’s a marketing wizard, who didn’t realise people wouldn’t want to start paying
subscriptions for a free social media platform. He’s being sued by Tesla shareholders for –
they believe – ‘overstating the effectiveness and safety of their electric vehicles
’ autopilot and full self-driving
technologies’. Maybe it is all 4D chess. Maybe Musk really is the smartest man on
earth. Maybe he’s failing successfully. Or maybe, he’s just failing. All
opinions, news, research, analysis, prices or other information is provided as general
market commentary and not as investment advice and all potential results discussed are not
guaranteed to be achieved. The information may have been derived from publicly available
sources, company reports, personal research, or surveys. Past performance is not indicative
of future performance. Trading carries risk of capital loss. Service available to
professional clients only.