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Market Insights

Tesla's Stock Falls - Twitter Jitters or Electric Vehicle Pessimism?

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Tesla’s stock remains in a clear downtrend. Is this due to the macro environment or because Elon’s busy playing ‘Chief Twit’ rather than focusing on Team Tesla? Or is the EV outlook simply worsening? Tesla’s our pick for stock of the week.

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Elon Musk is either a terrible human being or humanity’s saviour. All depends on who you speak to (or which media you watch/read). His divisive character and outspoken nature are addictive for the media sphere. From a business and investing perspective, it’s arguably more of a distraction than anything else.

That said, when a large stakeholder, and in this case, founder, decides to purchase another business (Twitter), investors may become concerned about the impact on Tesla’s holdings, as we covered in “Tesla deliveries and a Twitter cascade”:

However, negative news on the Twitter deal could override anything fundamental influencing Tesla’s share price. If investors fear a large block sale of Tesla stock, they may rush for the exits all at once, potentially causing a self-reinforcing price cascade.

Some of the weakness in the share price at the time was attributed to weaker deliveries, with a link being made to potentially weak demand. Weakness squared! The stock was trading $204. Now, it’s trading just below $180.

And Tesla’s not alone. In the large cap ($10bn-$200bn) space, electric vehicle makers were among the worst performers last week. Rivian plunged by 13%. Lucid dropped 12.7%, and Nio fell by 9.4%.

Some commentators have speculated that this could be partly due to mid-term elections hobbling the Biden administration's efforts to push electric vehicle adoption.

However, there could be a far simpler explanation...

A slowing economy meets rising interest rates

It’s not an easy time for many companies, but electric vehicle manufacturers are known to be cash-burners. Tesla went years without turning a profit. In a low-rate environment that didn’t matter. Capital was plentiful and cheap, and investors have more patience if you’re the market leader in a niche industry that could go mainstream, as Tesla arguably was/is.

Now, the costs of both materials and capital are rapidly rising, alongside a loss of confidence from consumers. Lucid’s earnings report revealed that pending customer orders had fallen from 37,000 to 34,000 between Q2 and Q3. Longer waiting periods for deliveries were cited as a concern. Lucid lost $670.2 million in the third quarter, compared to a $524.4 million loss a year earlier. Moving in the wrong direction…

Chinese electric vehicle maker Nio also struggled with a larger quarterly loss of $544.1 million, although the company expects deliveries to increase to between 43,000 and 48,000 vehicles in Q4 2022.

It’s a similar story across the nascent Electric Vehicle industry. Losses are mounting up, and investor patience is starting to wear thin. If you can invest in US treasury bills and earn 4% every year, the motivation to keep financing a cash-burning EV startup is sure to dwindle…

Many of the companies still have cash on hand, but it seems that Tesla is far from alone in this revaluation of electric vehicle stocks. It’s not always about Musk.

Not investment advice. Past performance does not guarantee or predict future performance.

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