The Great Tesla Stock Repricing
It’s healthy for the car maker, but can Elon Musk’s finances handle it?
How much money Elon Musk has in the bank suddenly has become a general societal concern. Fans, investors and employees of his non-Tesla businesses, including Twitter, realize that it’s Mr. Musk’s Tesla wealth that helps keep them afloat.
Tesla shareholders realize how much they have been supporting his other endeavors, which compete for his attention.
In the latest news about one of the strangest corporate acquisitions ever, Twitter’s bankers are reportedly trying to reduce calls on Twitter’s faltering cash flow. How? By having Mr. Musk personally take over some of the company’s corporate debt, using yet more of his Tesla shares as collateral.
This would be a brave stand if it were really needed to preserve Twitter from bankruptcy. But things get complicated for two reasons: his board’s requirement that he put up $100 of Tesla stock for every $25 of borrowing, and Tesla’s epoch-making plunge, down another $14 on Tuesday.
Mr. Musk gets blame from his most loyal investors for triggering the selloff because of his Twitter engagement, his Tesla stock sales, the potential for margin calls, and his off-color tweeting.
But an occasion for re-rating Tesla was coming anyway. The company has shed a monumental $900 billion in market cap and is still richly priced for a car maker with its growth prospects.
For years analysts justified its share price by saying Tesla wasn’t a car company, it was another Apple. Meaning what? Apple isn’t some free-spirited, uninhibited innovator spinning off new industries in all directions. It’s basically one thing, an iPhone company.
Tesla is one thing, a car company. For a lot of reasons, profit margins on cars will never be as attractive as profit margins on iPhones. And just as no reason exists to believe Apple could dream up another money-spinner equivalent to the iPhone, no reason exists to believe Tesla will invent a product or service to transcend the competitive predicament of a car company.
I made myself unpopular years ago by pointing out that the established, union-employing companies dearest to politicians’ hearts would also be lured into making electric vehicles by the same subsidies that lured Tesla. These companies operate under an additional political dispensation, thanks to our fuel-economy regime, which lets them lose money on EVs to preserve the inflated pickup-truck profits they earn behind a 25% pickup import tax in place since LBJ.
Political favoritism has shifted against Tesla. Small example: The subsidized charging network the Biden administration is building devalues the competitive advantage Tesla created for itself by building its own charging network.
Clearly now, Tesla won’t have the electric-vehicle market to itself. Whatever growth that market affords—and fans and skeptics remain divided—will be fought over fiercely with other companies.
These makers have learned from Tesla—electric vehicles, for most buyers, are indulgence cars, like GM’s giant, sold-out electric Hummer, or Ford’s $56,000 Lightning pickup, or its $70,000 Mustang Mach-E GT.
They aren’t the tiny runabout Nissan Leafs or Prius-like hybrids that Ohio State University guru Chris Atkinson preaches are the best use of a lithium-ion battery if the goal really is to displace CO2 emissions.
The job of stock analysts is to rationalize the stock prices the world hands us, on the reasonable assumption that prices convey meaningful information. To solve the mystery of Tesla’s share price they resorted to the presumption that Mr. Musk would conjure some unforeseen source of future profits.
Government policy also is rationalized. Joe Biden, it’s explained, is subsidizing electric vehicles to reduce emissions. But does this really describe either motive or effect? He and his aides may have merely identified a way voters will let him spend money and channel it to business and labor groups that support him.
In obvious ways, EV subsidies actually encourage emissions: to build the cars, to mine the minerals for their batteries, to charge them up. In the great lacuna that’s seldom mentioned, if EV drivers are subsidized to use less gas, it becomes cheaper for someone else to use more.
The policy bubble hasn’t popped yet even if the Tesla bubble has, revaluing the car maker in a manner that is healthier and more realistic in the long run. The biggest test for Mr. Musk was always going to be the company’s repricing in line with the opportunities of selling cars into a crowded and competitive car market.
The timing is bad, from a pending expected recession to China’s Covid chaos, spiking minerals prices and declining consumer confidence. It isn’t the best time for Mr. Musk to encumber his Tesla stake with forced sales and possible margin calls. He suddenly has a lot riding on the Cybertruck, Tesla’s bid to catch a share of the protected profits that other car makers have long milked from the closed U.S. pickup truck market.