Tesla share price drop

A slew of negative events have sent Tesla’s stock price down this year, but the company and its founder continue to get support from loyal believers.

Written by Daniel Ekwer

The fall in Tesla’s stock price in 2022 (at its low -45% to $625) coincided with a slew of negative events.

The sale could be hype for brave investors, who can look beyond Tesla’s controversial founder and CEO, Elon Musk, his personal media aspirations and political commentary.

China shutdowns and supply chain problems

Tesla Shanghai has been the beacon of Tesla’s achievements so far. The construction’s leading electric vehicle manufacturing center marks the second phase of iteration of the facilities after Freemont, according to long-term Tesla contributor Ross Gerber, co-founder and CEO of Gerber Kawasaki.

Shanghai’s production meets the demand not only of China’s desire for electric cars, but the factory is also a major export center.

Harsh shutdowns pitted production for Giga Shanghai in April, but closed-loop manufacturing resumed in late May (workers remain on site).

Shanghai accounts for about 40% of Tesla’s total delivery numbers, and a lower contribution will dampen China’s June quarter production results, as well as Tesla’s overall profit.

Twitter Circus

Dan Ives of Wedbush Securities, a positive commentator and analyst at Tesla, didn’t utter his words on Bloomberg regarding Elon Musk’s proposed $44 billion acquisition of Twitter.

“(Twitter) has been a disaster from the start, and he (Musk) keeps pouring fuel on the fire.”

Twitter was and still is the portal that Elon Musk uses to communicate with the world, even though his musings can be inflammatory and provocative.

Musk has always been controversial, but loyal followers were happy to consider any excesses from someone with Aspergers to a genius who was changing the world.

Through an online interview with Zoom Ross Gerber stated:

“The more stress he (Music) gets, the crazier he seems, and if you want to invest in genius and absolute genius and want natural, it just doesn’t work that way.”

“So you can ride and if you don’t like it, you don’t… you can resist and groan as much as you want, it won’t change a single thing he’s going to do, and he’s going to change the world in ways I’ve never seen someone do in my life.”

Gerber says the latter includes Steve Jobs.

But will the Twitter circus, as Dan Ives declared, leave some “semi-permanent blemishes” on Tesla?

There is no doubt that Musk has become a much more ‘political’ voice on the social media platform, however, unlike critics and opponents, Gerber maintains a different view regarding the impact of the Twitter failure on Tesla’s management and culture.

Gerber stated that “The mission is so important to the people who do it, that they don’t pay attention to these things…the misunderstanding between reality and what we see and read is a divide and the bay is being breached by experience. Tesla’s management is on a mission, and everyone thinks it’s going to work.”

On the flip side, Gerber emphasized that Elon “burns a lot of people and doesn’t attract everyone”.

Linking through the Twitter debacle to affect Tesla may be as short-sighted as not viewing the Shanghai shutdowns as a buying opportunity.

Is there smoke without fire?

In early February 2022, the California Department of Employment and Housing announced plans to sue Tesla over racism and harassment of black employees at the Fremont, California plant.

The lawsuit comes on the back of a $137 million damages payment to a former black employee for racial abuse, when he worked at the Fremont plant in 2015 and 2016.

Adding more fuel to several fires, global rating agency S&P has dropped Tesla from its ESG benchmark.

Several reasons are cited, but one analyst, Rick Mills of the “Ahead of the Herd” newsletter, offers some very compelling analysis (see link below).

Musk was recently pictured with Indonesian President Jokowi Widodo at the Tesla factory in Austin, Texas.

No one can criticize Tesla for wanting to secure the necessary materials and minerals, but the question needs to be asked at what cost and what image is Tesla trying to present to the market?

Mills’ conclusion raises material for thought: “A company that has shown itself more than willing to cut deals with the devil in Indonesia and New Caledonia, should not masquerade as an angel when it comes to its environmental practices.”

Putting headwinds into context

Looking beyond the shutdowns in China and the sideshow on Twitter, demand for a Tesla car is so strong that the company has announced it is no longer taking orders, so that 12 months of backlog can be filled.

How other car companies like to have the same problem.

With the ongoing operation of Giga Austin (and Berlin), Phase 3 of its “machine-making machine” iteration, Tesla will produce the Model Y with new 4,680 battery cell packs, new AMD chip hardware, and a drive program (FSD) expected to reach A new level of autonomy by the end of 2022.

Musk is going ahead with the Twitter takeover, but he has taken off Tesla’s risk as the margin loan on his shares expires in exchange for a portion of the equity in the acquisition.

Musk previously stated after the $8 billion in Tesla stock sales that he would not sell any more Tesla stock.

Wedbush’s share price target for Tesla shares has been lowered to $1,000 from $1,400 with the effects of the shutdown and slower China growth in the second half of 2022 affecting earnings expectations, but Dan Ives maintains an overweight recommendation.

Jefferies also lowered Tesla’s price target to $1,050 from $1,250 and maintained a buy rating. The broker cited an “uncomfortable accumulation of negative news” including China, ratings downgrades, controversial political views, and ethical questions.

Credit Suisse, after a visit to the Fremont factory, reiterated its $1125 price target and reaffirmed its Outstanding Performance rating.

General market sentiment is fragile

The macroeconomic environment remains challenging with the Federal Reserve raising interest rates and initiating quantitative tightening.

Talk of a global recession is still flat and US stock markets remain fragile as attested by the sell-off after poor results and guidance from companies like Walmart, Target and Snap, to name a few.

In a risk-free environment, multiple stocks that are higher remain vulnerable to further selling, including those with large cash positions on the balance sheet such as Apple and Tesla.

Ongoing threat to competition and sometimes questionable ethical standards, in combination with a major shareholder, Elon Musk raises the stock’s risk profile.

Gerber believes 2022 is similar to 2019, when the company faced many challenges while expanding production of the now popular Model 3.

For now, Tesla’s true believers consider this mode to offer much more value to a company than just electric cars; It’s power, battery storage, insurance, software, automated taxis, and even Optimus, a robot, if one is willing to accept Musk’s aspirations.

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To read Rick Mills’ analysis: After being stripped of ESG credentials, Tesla continues to go after dirty nickel in Indonesia.”

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Danielle Equiere has been involved in equity investing in Australia and internationally for over three decades, both professionally and personally, and is the author of Shareplicity. A Simple Approach to Investment and Shareplicity 2. A Guide to Investing in the US Stock Markets.

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