Tesla shares continued to lose ground on Tuesday and, if anything, the ongoing downturn seemed to accelerate as the stock suffered one of its worst days in some time, closing down $12.07, or 8.05%, to $137.80.

That’s off sharply from the company’s 52-week high of $402.67, and compares with the $196.23 it reached Dec. 1. But two other statistics are worth noting: Shares traded under the Nasdaq ticker TSLA have fallen 57.9% since April 14, the day CEO Elon Musk went public with his $44 billion bid for Twitter. It’s down 36.3% since the acquisition of the social media site was completed Oct. 28.

Exactly what’s behind the plunge after years of market-leading gains is a matter of much debate, though critics have been pointing fingers at Musk himself as one of the key culprits — even as the multi-company chief executive tries to finger macroeconomics for Tesla’s current fall from grace.

What’s clear is that even positive news in the EV market — the Biden administration’s decision to delay new rules on EV incentives — did nothing to help Tesla Tuesday. On the other hand, there were clear signs that new controversies surrounding the South African-born executive continue to worry analysts and investors alike.

For one thing, Musk appeared to sending signals he might not abide by the results of a Twitter user poll which asked whether he should step down as the social media service’s CEO. He originally said he would do so, whatever the results — which turned out to have 57.5% of respondents saying he needed to resign.

Meanwhile, the executive seemed to be entering yet another high-profile fight, this time with Senator Elizabeth Warren. She recently wrote to the Tesla Board of Directors questioning whether there were legal issues involving the Twitter takeover involving a possible conflict of interest or misappropriation of funds.

Ill winds blow

It’s become a cliché to talk of “the perfect storm,” but that seems particularly apt when it involves Tesla right now. Ill winds began blowing almost as soon as Musk made his unsolicited bid for Twitter. Since then, the company has been rocked on a variety of fronts. 

• There’s the so-far disastrous acquisition that has preoccupied the executive since at least its completion date in late October. 
• A number of potential significant lawsuits are directed at Tesla, its board and Musk.
• There are technical challenges that continue to delay the launch of key products like the Cybertruck pickup and the Full Self-Driving system. 
• And economic uncertainties threaten to slow both domestic and foreign sales of EVs — even as competition heats up.  

Maybe he shouid have accepted “no” for an answer

Musk’s initial bid for Twitter was rejected and many observers think it would have been great if he just walked away. But that was something that the openly thin-skinned executive didn’t take well, promising a fight. Ironically, he reversed course soon after, trying to pull out of the deal while Twitter sued to complete it. When it was all done, Musk had a troubled virtual behemoth that seemed in far more trouble than warranted his $44 billion investment.

Worse, according to key observers, the serial entrepreneur appeared to have little clear strategy to right a foundering ship — other than firing off controversial tweets and making even more questionable moves.

Musk has sent many Twitter users racing to alternative sites, such as Mastodon. And half of its top advertisers followed, leaving the company with a growing deficit and no clear path back to the black. That prompted Musk to sell of another $3.6 billion in Tesla stock, bringing the total to $40 billion this year. 

No full-time CEO?

That and the distraction Twitter has caused have clearly contributed to the downturn. “Elon abandoned Tesla and Tesla has no working CEO,” KoGuan Leo, Tesla’s third-largest shareholder with holdings worth $3.4 billion wrote late last week. “Tesla needs and deserves to have working full-time CEO.”

Now, Sen. Warren has weighed in. On Dec. 18, she wrote the Tesla board “regarding concerns that (the board) has failed to meet (its) legal duty with regards to the actions of Tesla’s Chief Executive Officer, Elon Musk, in the aftermath of his purchase of Twitter.” She continued by laying out “a series of questions about how the Tesla Board is dealing with conflicts of interest, misappropriation of corporate assets and other actions by Mr. Musk that appear not to be in the best interest of Tesla and its shareholders.”

The board has yet to respond, but Musk fired back Monday with a tweet declaring, “The United States has definitely been harmed by having her as a senator. lol”

Pick your fights carefully

The issue could play out in several ways, not only if Warren pushes for further action by the Senate but also in a Delaware courtroom where Tesla, Musk and the board are facing a suit by a disgruntled shareholder who has challenged the multi-billion-dollar pay package approved a few years back. The repeated payouts made Musk the world’s richest man — until the ongoing stock plunge ate into a chunk of his wealth.

And he’s not alone.

Since April, around $750 billion in Tesla’s market capitalization has vanished, at least for now belying Musk’s November promise to shareholders that the company would soon be worth more than Apple and Saudi Aramco combined — more than $4 trillion at the time.

The lawsuit challenging Musk’s pay is just one of a growing assortment of legal actions facing the automaker. Tesla is being sued over alleged sexual harassment and racial discrimination, among other things. It is facing increasing scrutiny over its marketing claims — and the safety of — its Autopilot and Full Self-Driving technologies. One investigation in California could see it barred from selling vehicles in the state.

Weakening EV sales and a tarnished image

But what could be an even worse problem was signaled in the initially glowing numbers for the third quarter of 2022. No question, Tesla’s sales and earnings were solid compared to prior quarters. But what dimmed investors’ reaction was the fact that the automaker still missed the consensus delivery forecast.

Now, add the worsening global economy and, in the U.S., fast rising interest rates — the Federal Reserve just last week raising them by another half-percent. Musk has openly expressed concern about what that could mean for sales. Even then, Tesla is losing market share, dipping from 79% to 73% of the U.S. EV market since the beginning of the year, according to industry data.

And while some dip is to be expected, the flood of new competitors are coming along at a time when Tesla’s image is being tarnished by Musk’s post-Twitter actions, said analyst Sam Abuelsamid, principal auto analyst with Guidehouse Insights.

China and foreign markets

The real concern could be China, rather than the U.S. Tesla has been losing momentum and is taking the unexpected step of suspending production for the last week of the year, apparently to balance inventories and demand. It is watching a number of competitors, particularly domestic Chinese brands like BYD and Nio, gaining ground in recent months.

In Europe, a new Berlin plant has helped the Texas-based carmaker gain share since it opened this past year. But Musk’s image appears to be taking at least a slight hit as EU regulators call out some of his actions at Twitter. It’s unclear whether that will translate into consumer preferences.

Tesla could get another boost this coming week if it announced plans for a new Mexican Gigafactory – though local newspaper Reforma cautioned the announcement could be put off until next month. The plant is expected to focus initially on parts production and cost $800 million to $1 billion. But sources quoted by Reforma, Reuters and others suggested the long-term goal is to add battery and vehicle production, as well.

That would be in line with Musk’s long-term goal of selling 20 million vehicles annually, or at least 20% of global automotive production, by 2030. It currently is supplying barely 1%.

Some Good News – But it Isn’t Moving the Market

Tesla got some potentially good news Tuesday when the U.S. Treasury Dept. said it would delay releasing new rules impacting EV incentives as a result of the Inflation Reduction Act. Tesla – and General Motors are to get tax credits for buyers restored under the IRA. But the rules could also limit or reduce the incentives based on where the minerals used in their EV batteries came from. They get at least a temporary reprieve now.

Some analysts and investors are betting that Tesla will also get a market boost once it becomes clear that Musk himself is committed to stepping away from day-to-day operations at Twitter to focus on Tesla again – or Tesla and his other big venture, SpaceX.

But Musk seems determined to confound such speculation. His backers among Twitter users have questioned the results of the poll, among other things demanding that only those with the for-fee blue checks be allowed to vote. “Good Point. Twitter will make that change,” Musk replied – though he has yet to formally reject the initial results.

A clear sense of direction would certainly be welcome. Even his most vocal proponents have expressed everything from concern to frustration to anger over the Twitter mess. But it’s far from clear when that might happen.

How low can Tesla go?

Could Tesla stock drop much further? The answer is yes, though that’s no certainty it will. And it should be pointed out that the automaker has a lot of room to keep falling. Consider that its market cap is still nearly an order of magnitude bigger than competitors like General Motors, Ford and Volkswagen – and substantially higher than the giant Toyota.

And while Tesla short-sellers may currently be celebrating, they likely do so with painful memories of the cost of calling things wrong in the past. Tesla has ridden a stock market roller coaster since going public more than a decade ago. But it has routinely bounced back whenever a great fall seemed at hand and that could yet happen, several experts said on background when asked where they’d be placing their bets right now.

So, while there’s reason to believe Tesla’s current sell-off isn’t over yet, only those who can afford the risk should be betting against it for the long haul.

Musk at the center of the storm

KoGuan Leo isn’t the only investor who is having second thoughts about whether the once-richest-man-in-the-world should continue running Tesla. Ross Gerber, a long-time Tesla bull and founding partner of Gerber Kawasaki Wealth Management, appears to be at his limits. In a new tweet he wrote that “Tesla stock price now reflects the value of having no CEO. Great job tesla BOD – Time for a shake up. $tsla.”

He has launched a move to rally other investors into pressuring the Tesla board to find a replacement for Musk. Whether that will go anywhere is uncertain. The BOD features members of Musk’s family, for one thing, and was essentially hand-picked by the executive. It showed its fealty by approving what became the most lavish executive compensation plan in the history of Planet Earth and has rarely – if ever – been known to block a significant Musk move. They certainly didn’t rein in his Twitter plans.

That said, Musk does appear to recognize there are problems, big problems, facing not only Twitter and Tesla, but his own carefully cultivated image as a maverick genius worth even more than his weight in gold.

But will he ride it out?

Significantly, though not surprisingly, Musk is deferring blame for the troubles facing Tesla. Prompted by Gerber’s tweet, he responded that, effectively, the buck doesn’t stop here. It’s all a problem of macroeconomics.

“As bank savings account interest rates, which are guaranteed, start to approach stock market returns, which are not guaranteed, people will increasingly move their money out of stocks into cash, thus causing stocks to drop,” Musk tweeted.

There’s no doubt some truth to that considering those factors have impacted global stock markets on the whole. A number of key investors and analysts still see the opportunity for a big upswing. Mizuho Securities still has a “Buy” on the automaker, and a $285 target price. Goldman Sachs last week set a similar target — but it also warned that if the global economy falters Tesla shares could drop to $135. That number seems to be becoming a reality faster than the firm might have expected just days ago — even without the catastrophic economic news it worried about.

For now, it seems, the lack of a full-time CEO and the risk of further brand diminution seem to be the most worrisome factors. And with Tesla facing legal challenges, a simmering shareholder revolt and the scrutiny of a Senate maverick, betting on Musk is daily looking to be a more and more risky move.

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• Source: https://www.thedetroitbureau.com/2022/12/tesla-stocks-downturn-accelerates-and-analysts-question-how-low-can-it-go/