Musk Loses Richest Person Crown as Tesla Market Cap Falls Below $500 Billion

Tesla (NYSE: TSLA) stock has continued to slide and yesterday it closed below a market cap of $500 billion for the first time in two years. TSLA CEO Elon Musk has also lost the crown as the world’s richest person to Bernard Arnault.

Tesla’s market cap surpassed $1 trillion in 2021 and it became the first automaker to reach that milestone. The spike in TSLA’s market cap also helped cement Musk’s position as the world’s richest person. Musk’s net worth surpassed $300 billion and he became the first person ever to reach that feat.

However, 2022 has been a different ballgame for Tesla and the stock is down over 50% in the year. Multiple factors are leading to the sell-off in TSLA stock.

Why is Tesla stock falling?

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. Even Rivian stock slumped and at one point its market cap even fell below the humongous cash on its balance sheet.

Lucid Motors stock has also lost over three-quarters of its market cap over the last year and has fallen to its all-time lows. Other EV names like Nikola and Arrival are also trading near their all-time lows. To be sure, the drawdown in Tesla stock is actually lower as compared to some of the other startup EV companies.

Meanwhile, along with the macro weakness, company-specific factors are also contributing to the crash in TSLA stock.

Analysts are concerned about the demand for Tesla cars

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 had 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. Then there have been reports that the company is cutting production in the country amid tepid demand.

Even in the US, 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.

The Twitter acquisition has been an albatross for TSLA stock

Tesla stock also reacted to the drama over Musk’s Twitter acquisition. The stock has been falling since Musk bought Twitter. Musk already splits his time between Tesla, SpaceX, and some of the other companies that he owns. Markets fear that he would end up spending more time at Twitter when he should be spending his energies at Tesla.

Also, Musk has restored several banned accounts including that of former President Donald Trump which has not gone down well with a section of the market. The Twitter controversy has taken a toll on Tesla’s brand as well as Musk’s popularity.

Musk has been selling Tesla stock

To make things worse, Musk has been continuously selling Tesla shares and has sold another $3.6 billion worth of the shares this week. The selling comes despite Musk saying previously that he was done selling the stock.

Musk incidentally believes that TSLA stock has room to run way higher than these levels.

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.”

Wall Street analysts on Tesla stock

Several brokerages have lowered Tesla’s target price over the last month. Earlier this week, Goldman Sachs lowered its target price on Tesla from $305 to $235 but reiterated its overweight rating.

It said, “We would continue to be selective with auto OEM stocks as price and mix are likely to be headwinds in 2023 as supply/demand generally moderates, and we prefer TSLA and GM (both of which likely benefit from the IRA (Inflation Reduction Act), with Tesla in particular a leader in EV/autonomous tech in our opinion).”

Inflation Reduction Act of 2022

President Joe Biden signed the Inflation Reduction Act which would hasten EV adoption in the country. Tesla cars stopped qualifying for the federal EV tax credit as it crossed the minimum threshold of sales. Now, even Tesla cars would be eligible for the subsidy from 2023.

Apart from Tesla, General Motors and Toyota Cars also did not qualify for the EV subsidies after crossing the threshold. The extension of the EV tax credit to all Tesla cars is a positive for the company especially as the company launches more models. It has begun Semi deliveries while Cybertruck’s deliveries would begin in 2023.

Adam Jonas Finds Tesla stock attractive

Meanwhile, Adam Jonas of Morgan Stanley, who is among the biggest Tesla bulls said that EV stocks would have a tough time in 2023. He listed Tesla, Rivian, and Ford among his top ideas in the industry.

He said, “As the year evolves and as forecasts and stock prices decline, we are preparing for some potentially exciting value opportunities to emerge.” Jonas added, “A window is opening for those who can look through the elevated levels of volatility.”

Previously Jonas said that Tesla stock would be an attractive buy near his bear case target price of $150. The stock is now very close to that price level.

Meanwhile, in the short term, the noise over Musk’s Twitter acquisition would continue to weigh heavy on Tesla stock. Even some of the Tesla bulls see Musk’s association with Twitter as a needless distraction especially as the EV competition heats up globally.