Investors Urge Elon Musk to Prioritize Tesla Amid Growing Electric Vehicle Competition
Tesla faces its biggest challenge in the next two years as rival automakers take advantage of the surging demand for electric vehicles. This comes at a time when Elon Musk seems preoccupied with his prominent ventures, including social media, space travel, and artificial intelligence.
That’s what respondents to the latest Markets Live Pulse survey say. Of the 630 global MLIV Pulse contributors, 54% reported an increased risk of industry competition, while 26% saw its mercurial chief’s behavior and decisions as the top concern for Tesla shareholders.
“Musk is just such an unpredictable person that I would consider that one of Tesla’s biggest risks,” Tuttle Capital Management CEO Matthew Tuttle said in an interview.
With Tesla’s profit margins shrinking, some 67% of respondents said the billionaire CEO should focus more on the automaker. Their warning follows the stock’s seemingly improbable 128% rally this year, fueled by investors’ renewed appetite for tech megacaps and Musk’s prediction that the era of fully autonomous vehicles is approaching.
While Tesla currently has a significant lead over other companies, whether it’s an established automaker or a startup, much of its remarkably high market value is based on the assumption that it will be able to maintain this dominance in a future where electric cars are more common. .
Still, Tesla’s competitors are accelerating. Just earlier this month, China’s BYD Co. set a sales record for the second quarter and delivered 352,163 fully electric cars. It has gained a foothold in Tesla, which delivered 466,140 electric cars to customers worldwide – also an all-time record.
The counterargument is that many of Tesla’s competitors are still struggling with problems. For example, Ford Motor Co.’s U.S. sales of electric cars fell in the second quarter after it had to halt production earlier this year at a plant in Mexico that builds the Mustang Mach-E.
Even so, analysts and investors warn that Tesla’s current advantage could erode quickly as government policies, such as the US Anti-Inflation Act, encourage other automakers to embrace electric vehicles. As rivals step up their game, Tesla’s famously expensive stock – trading at 75 times forward earnings – leaves little room for error. By comparison, GM trades at about 6 times estimated earnings and Ford at about 9 times.
“Competition is Tesla’s main risk factor in the longer term, and even a mediocre performance from the crop of about 100 new electric cars that will hit the market this year will weigh on Tesla,” said Craig Irwin, an analyst at Roth Capital Partners. “The current competitive advantage is very real, but we need to understand how this shrinks.”
Defending market share costs money. About 63% of MLIV Pulse respondents expect Tesla to continue to lower prices to get higher volumes. As a result, its tough profit margin is already taking a hit. More cuts are likely to leave margins even thinner and close the gap with other car companies.
The impact of all the recent price cuts on Tesla’s earnings will become clear on Wednesday, when the company reports its second quarter results. The average profit estimate for the quarter has decreased by 29% from six months ago.
“Winning shares increase turnover and margins. Both are necessary,” said Nicholas Colas of DataTrek Research.
The “musk risk” embedded in Tesla stock came into sharp focus last year when the billionaire made a highly public offer on social media Twitter, selling large chunks of Tesla stock to pay for the acquisition. The selling pressure and concerns that Musk was too distracted from running Tesla weighed heavily on shares.
Since then, Twitter’s own value has also fallen. About 67 percent of those polled said they don’t think Twitter will ever be worth what Musk paid for it.
