Tesla's cratering share price goes beyond Musk's preoccupation with Twitter. The entire EV market is slowing down.
- Tesla's share price has been cut in half and a distracted CEO isn't the only issue.
- The wider EV market is facing a tough mix of challenges.
Tesla shareholders have reason to be frustrated. As Elon Musk has become increasingly preoccupied with Twitter, his EV company has seen its market capitalization dwindle to less than $500 billion after hitting over $1 trillion last year. At the time of writing, its share price sits at $126.31, down 60% since the beginning of the year.
Musk's $44 billion, debt-fueled Twitter buyout isn't the only factor weighing on Tesla shareholders. Tesla's woes are symptomatic of wider issues plaguing the EV market.
Soaring interest rates and inflation, wary investors, cash burn, and waning consumer demand are all negatively impacting the market.
The first two pose the biggest problems for Tesla and rivals such as Arrival, Lucid Motors, and Rivian, slowing the market even as the world races to try and achieve net-zero emissions targets.
Short-term demand is waning
Thomas Ingenlath, CEO of EV maker Polestar, noted in September that "with just 1.5% of the vehicles on the road being electric today, it is clear we are living in an EV bubble, not an EV boom."
EV startup Lucid is struggling with canceled customer orders, according to leaked emails seen by Insider's Alexa St. John.
Mercedes and Tesla have been cutting costs for certain EV models on sale in China – the largest EV market – where 786,000 sales of new energy vehicles were registered last month, data from the China Association of Automobile Manufacturers suggests. Though that represents a 72.3% year-on-year increase, it makes the second slowest month for sales this year.
A recent KPMG survey of industry executives shows reduced bullishness, with EV adoption projected to be 10-40% by 2030 compared with more optimistic estimates they gave last year of 20-70%.
EVs will, in time, need to earn more favor among investors than the oil majors they aim to upend as they position themselves as a clean alternative to fossil fuel-based internal combustion engines.
But global economic uncertainty has pushed investors away from speculative EV stocks back towards traditional, safe stocks — such as the oil and gas giants.
"Inflation and this energy crisis primarily due to Russia's invasion of Ukraine, and a lack of long-term energy planning by every major government are to blame," said Simon Moores, CEO at Benchmark Mineral Intelligence. "This isn't an issue that's going to be solved soon."
Tesla's stock market value slid below ExxonMobil this week for the first time since 2020, falling to $435 billion on Tuesday-compared with the oil and gas company's $439 billion market value, according to the Financial Times.
Cash burn is high
Many of the new players are struggling to keep costs down in the current economy.
Last month, British EV firm Arrival saw its shares drop by a third after warning that it could be out of cash in less than a year.
Saudi-backed Lucid Motors, meanwhile, has also seen soaring capital expenditure costs. Its spend was $290.1 million in the three months to September compared with $92.8 million in the same period last year. The firm this week completed a $1.5 billion raise via a private sale of shares to its majority owner, Saudi Arabia's Public Investment Fund, in an effort to "strengthen its balance sheet and liquidity position."
Cash burn is inevitable given that building infrastructure from scratch takes a lot of money. "It's a symptom of the fact that the entire electric vehicle ecosystem is being built from scratch," said Moores.
A key reason for the cash burn is the impact of inflation; Moores noted that Tesla may actually have had an easier time than industry rivals managing costs by owning battery plants that helped solve major supply chain bottlenecks.
A report from AlixPartners published in June noted the cost of raw-material content for internal combustion engine vehicles in the US is $3,662 per vehicle, while EV raw-material content — which includes battery materials such as cobalt, nickel, and lithium — is at $8,255 per vehicle.
"Other EV makers won't be afforded the same financial benefits that Tesla received on the back of Elon's ever-evolving master plan," Moores said.
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