The end of the year for Tesla is almost the opposite of the start of the year.
On January 26, CEO Elon Musk was charting a clear roadmap after strong fourth quarter results and a strong 2021 in which Tesla produced and delivered nearly one million vehicles.
The markets were impressed: the company ended the month of January with a market capitalization near $1 trillion. Tesla was the sixth largest company in the world by market capitalization and could clearly state its ambitions to join the top five companies very soon.
On that day, Musk renewed his promise to make Tesla vehicles autonomous by the end of 2022. He also touted the prowess of Optimus, Tesla's humanoid robot. And made it the priority product for 2022, without disappointing many people, even though the fans would have preferred to hear that the focus would be on the Cybertruck, the futuristic and highly anticipated truck.
Watch the Stock Rise
He also promised to announce the locations of future Tesla factories before the end of 2022. Basically, 2022 was shaping up to be a year in which Tesla would consolidate its gains before 2023, a full year in terms of new vehicles.
Investors could reassure themselves, sit back and watch the stock rise.
Eleven months later, an avalanche of emotions has descended on Tesla investors. The group's stock is down 51%, representing a collapse in market value of $565 billion. Competitors, like China's BYD, are gaining ground. The problem is that the stock market fall, according to some analysts, is not really due to Tesla fundamentals but more due to an external problem: Twitter.
The social network has captured the attention of their great champion since he launched a $44 billion acquisition offer for the platform on April 25. Not only did the billionaire have to sell Tesla shares and take margin loans to finance the transaction, but he completely focused on the social network, abandoning Tesla somewhat, during a challenging macroeconomic environment due to an aggressive rate hike policy from the Federal Reserve to fight inflation at its highest in 40 years.
Indeed, since April, Musk has talked a lot about Twitter and less about Tesla. It was a battle with many twists and turns with the firm's former management team which finally ended on October 27, with the finalization of the deal. And since that date, the serial entrepreneur has been busy revamping the social network.
His advisers are reportedly pressuring him to use his Tesla shares as collateral for new loans to replace Twitter debt. According to Bloomberg News, Musk's bankers are considering replacing some of the high-interest debt he layered on Twitter with new margin loans backed by Tesla stock that he'd be personally responsible for re-paying. The discussions have so far focused on how to replace $3 billion of unsecured debt on which Twitter pays an interest rate of 11.75%.
And as if this weren't enough, a series of recent reports have ended up getting the better of the little patience left among Tesla shareholders.
Tesla Board Is Missing in Action
The carmaker unveiled another round of price cuts in China, adding to concerns over near-term demand in the world's biggest EV market. Tesla is now offering further discounts to China-based buyers of its Model 3 and Model Y sedans, provided the purchase is completed by the end of the year.
The incentives follow both a price cut unveiled in early October and reports this week that Tesla will reduce output at its key Shanghai factory. The move would mark the first time Tesla has voluntarily lowered output levels since the factory was opened in 2018, although covid-19 restrictions and scheduled maintenance clipped production earlier this year.
All this falls in the month of December, which is supposed to be a record month in terms of production and deliveries.
Investors are therefore exhausted and no longer hold back.
"Tesla board is missing in action," Leo KoGuan, one of Tesla's largest individual shareholders, tweeted on December 7. He then called on the company to carry out a share buyback program to boost the share price and limit the damage to retail investors.
"The market is NOT normal. That is why it is imperative the board is doing the buyback now. Now means now. Not hypothetical, NEW retail investors bought high and forced to sell low, not those who bought Tesla @$4 or less and sold them @$400," KoGuan added.
"$15B will reduce about 75 million free floating shares and push above $200 per share immediately."
KoGuan's outburst is shared by other shareholders like Gary Black, who is also calling on the board to repurchase the shares.
"I am 💯aligned with @koguanleo on a $10B share buybacks," Black posted on Twitter. "The TSLA BOD is not doing right for its SHs." BOD stands for board of directors and SHs is for shareholders.
One More Request
"Hey @elonmusk- Tesla’s valuation makes no sense and a share buyback, although symbolic, is the right move for some of teslas large cash position. $TSLA," added Ross Gerber, another outspoken Tesla retail investor.
Individual shareholders also want someone to represent them on the board.
Musk, who floated the idea of a 2023 share buyback program during the third quarter results, has already reiterated that it's up to the board to decide.
"This is up to the Tesla board," the billionaire said in November 14.
However, he decided, on December 8, to explain the reasons why Tesla’s stock was falling. For the CEO, this is due to fears of a recession as a result of the increase in interest rates by the Federal Reserve.
"Macro conditions are difficult: energy in Europe, real estate in China & crazy Fed rates in USA," he said.
And he received the support of some shareholders.
"Agreed, there’s definitely nothing you could have done better with regards to the Twitter purchase 😂damn you macro!!" one Twitter user and Musk fan said.
"Markets are volatile today. But one thing we do know for sure: We should stick with the long-term goals. Long-term is the key if the fundamentals are correct," added another Twitter user.
Musk's analysis seems to be shared by tech analyst Pierre Ferragu, who believes that Tesla's fundamentals are solid and therefore cannot explain the stock's fall. For Ferragu, the electric vehicle manufacturer does not have a demand problem and should continue to dominate its rivals in the long term.
"Tesla is progressively reducing prices to boost demand and absorb capacity growth. It has the cost trajectory to do so without hurting gross margins: Subsidies in the US, localized production in Europe, two giga factories ramping, absorbing fixed costs," Ferragu said.
For Ferragu, the economic downturn "could reduce delivery growth next year by 10-15pts, from the ~50% level of today, and cost a few points of a gross margin standing at ~30% today, while it would crush and bring to near bankruptcy incumbent manufacturers."
As a result, this will be "a competitive accelerator for $TSLA!"
