Elon Musk is Trying to Support Tesla Stock but It Is Not Helping

2022 was a year of reckoning for Tesla (NYSE: TSLA) as well as its flamboyant CEO Elon Musk. Not only did TSLA stock lose its status as a $1 trillion dollar company but Musk also fell to the second spot in global billionaire rankings.

Tesla stock fell to a new two-year low on Friday and its market cap plummeted to $385 billion. The Elon Musk-run company commanded a market cap of $1.2 trillion at its peak last year but has since fallen. In 2022 only it has fallen 65% and is on track for its worst year ever. Musk has tried to support Tesla stock but it hasn’t helped so far.

Tesla stock crashes

To begin with, we should understand why TSLA stock crashed in 2022. Firstly, we have a wider sell-off in growth shares especially those in the EV (electric vehicle) industry. Amid the slump, NIO fell to a multi-month low while Xpeng Motors hit its lowest level ever.

Lucid Motors, Rivian, Lordstown Motors, and Arrival also fell to their lowest level ever last week. To be sure, the drawdown in Tesla stock is actually lower as compared to other startup EV companies.

Rising interest rates have also taken a toll on growth stocks like TSLA. Musk also believes that rising interest rates are leading to the crash in Tesla stock. He tweeted, “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.”

On multiple occasions, Musk has warned of a recession and added that Fed’s rate hikes would only amplify one.

Musk’s Twitter ownership led to crash in TSLA stock

Meanwhile, along with the macro weakness, company-specific factors are also contributing to the crash in TSLA stock. Musk’s Twitter ownership has been an overhang for Tesla stock. His warming up to Republicans has also irked many liberals, many of whom were potential Tesla car buyers.

Tesla stock has underperformed the markets badly ever since Musk took over Twitter. His antics at Twitter have somewhat removed the aura of invincibility. Even Charlie Munger admitted that Tesla is kind of a miracle. While Musk fans believed that he would be able to turn around Twitter as well, at least so far, the social media company’s troubles have compounded since Musk took over.

Musk offered to step down from Twitter

Some of the Tesla bulls like Dan Ives of Wedbush Research and Adam Jonas of Morgan Stanley also turned cautious on the stock after Musk acquired Twitter. Musk soon realized that his Twitter drama is adding fuel to the crash in Tesla stock and offered to step down from the company once he finds a CEO “foolish” enough to lead the company.

Tesla stock initially rose after Musk made the announcement. However, the stock soon pared gains and continued to trend lower. Incidentally, Musk has said that even after he hires a new CEO for Twitter, he would continue to head the technology teams.

Demand worries surface for Tesla

Tesla has always been a supply-constrained company and the company was able to sell everything that it could produce. However, over the last couple of months, there have been concerns over the demand for Tesla cars.

During their Q3 2022 earnings call, Tesla lowered its 2022 delivery guidance and said that the growth would not be 50% as it has previously said.

Musk meanwhile downplayed demand concerns and said during the Q3 earnings call he said, “I can’t emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far in the future as we can see. So, the factories are running at full speed, and we’re delivering a recovery make and keeping operating margins strong.”

He emphasized, “we’re very pedal to the metal come rain or shine. So, we are not reducing our production in any meaningful way, recession or not recession.”

TSLA has lowered car prices and is offering incentives

Meanwhile, after the earnings release, Tesla has taken several measures that reflect that demand is probably not as strong even as Musk said that the fourth quarter would be “epic.” The company lowered car prices in China and is offering other incentives in the country to spur sales.

After multiple reports of Tesla cutting production in China, now Reuters has reported that the company has suspended production altogether in the country.

Even in the US which is Tesla’s largest market, the company recently said on its website that it would offer a $3,750 credit to buyers who take a Model 3/Y delivery in December. Subsequently, it increased the credit to $7,500 for US buyers and $5,000 for Canadian buyers.

While the credit might be due to the EV tax credit that Tesla cars would be eligible for from 2023, it also goes to show rising inventories and falling lead times.

Musk says no more stock selling for two years

Musk has been gradually selling Tesla stock after previously having said that he was done selling. His frequent stock sales have also dampened market sentiments. Musk has yet again said that he would not sell stock until about 2025. However, markets were not too enthused with Musk’s assertion and the stock closed lower despite Musk saying he won’t sell any more shares for at least a couple of years.

Notably, Musk has made multiple U-turns over the last couple of years which makes markets apprehensive about his commitments.

Musk sees Tesla stock running higher

He sold Tesla shares despite recently predicting a sharp rise in the stock. During the Q3 2022 earnings call he said, “I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined. That doesn’t mean it will happen or that it will be easy, in fact it will be very difficult, require a lot of work, very creative new products, expansion and always good luck. But for the first time I’m seeing, I see a way for Tesla to be, let’s say roughly twice the value of Saudi Aramco.”

Despite the crash in TSLA stock, Morgan Stanley is overweight on the EV stock. In a recent client note, it said, “As the ‘ambassador’ of EVs, Tesla’s valuation raises questions for investment returns and capital formation across the sector. Is it time to consider alternative technological paths in addition to EVs? We view this as a buying opportunity.”

Previously, Morgan Stanley analyst Adam Jonas said that Tesla would be a good buy at his bear case target price of $150. On Friday, the stock closed below $125.