Even in a turbulent economic climate, in a nascent industry that is prone to volatility, and in the middle of a geopolitical balancing act that impacts all of the above, the fall in the value of Tesla over the last year has been dramatic.
From a valuation of $1 trillion near the end of 2021, the American electric car company began 2023 with a market cap of $383.76 billion. In the last 12 months, the share price has fallen by 69 per cent.
That drop made Tesla CEO Elon Musk the first person ever to lose $200bn, the largest wealth decrease in history. It also threatens the supremacy of the first car company to bring electric vehicles into the mainstream.
So, why has Tesla stock fallen so dramatically? And can the former darling of Wall Street reclaim his crown?
The story of Tesla’s decline begins with an obsession. Long before Musk sought to buy Twitter, he was a prolific user of the social media site. Musk has tweeted more than 22,000 times since joining in 2009, sharing personal musings, news about his various businesses, alt-right memes and about Twitter itself.
But Musk was not content to be just a user of Twitter, he wanted to control and shape it. At the beginning of April, a filing with the Securities and Exchange Commission revealed that Musk was Twitter’s biggest shareholder, with a stake of 9 per cent. Soon after, he announced his intention to buy the company.
From the day his stake in Twitter became public, Tesla stock began to steadily decline. At the time, Tesla’s shares were trading at around $360. When he finally purchased the company in October the price had dropped to $219. By December of 2022, Tesla’s price had dropped to $150, and longtime investors in the company were beginning to sound the alarm.
It was not just that taking on Twitter was a distraction for Musk — although that was a significant factor — but a series of seemingly bad business decisions he made in his first months at the social network that caused alarm.
In his first month, Musk oversaw massive layoffs of staff responsible for content moderation, the reinstatement of accounts that were previously banned for posting extremist content and conspiracy theories, including former president Donald Trump, promoted and engaged with far-right content himself and launched an ill-fated premium service that led to mass impersonations of public figures and companies.
Those abrupt changes led half of Twitter’s top advertisers to stop spending on the website. They didn’t just harm Twitter, but also Tesla, a company that owes much of its success to a belief in Musk’s business acumen. Tesla’s brand image took a major hit, according to successive surveys.
Tesla investors started to speak out publicly.
“There is no TSLA CEO today,” tweeted Gary Black, managing partner of the Future Fund LLC, which owns Tesla stock worth some $50mn at the time of writing in December.
“The market voted today that the $TSLA brand has been negatively impacted by the Twitter drama. Where before EV buyers were proud to drive their Teslas to their friends or show off Teslas in their driveways, now the Twitter controversy is hurting Tesla’s brand equity,” he added.
Distraction is a word that comes up a lot when analysts discuss Tesla’s downfall. Len Sherman, an adjunct professor at Columbia Business School who used to own Tesla stock and worked as a consultant to the auto industry, believes Tesla’s “completely ineffectual” board holds much of the blame for allowing Musk to run wild.
“The fact that they didn’t really read the riot act when he started getting involved with Twitter is just not responsible board governance,” he told The Independent in a phone call from his Tesla. “From the standpoint of Tesla, what he’s been doing has been very harmful to shareholder value of Tesla, and that should be the board’s concern. his isn’t a normal board. This is a board that serves Elon Musk, not vice versa.”
Though, Sherman also believes Musk was overextended before Twitter came along.
“The bigger concern is just the lack of focus and attention. Even before Musk began his dalliance with Twitter, he was overextended. He was running Tesla, he was running SpaceX, he was running Neuralink, he was running the Boring Company. The Twitter thing just might be system overload,” he said.
While Sherman credited Musk for his “astonishing” management of Tesla to make it the biggest car company in the world today, he also questioned his strategy going forward. The two new Tesla vehicles commanding Musk’s attention at present are the Cybertruck — a futuristic-looking vehicle with “more performance than a sports car” and a second-generation Roadster which promises to be one of the fastest and most expensive cars on the market.
Sherman pointed to Tesla’s original mission, which is explained on its website, was to “accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible.”
