Elon Musk lost $200 billion last year. Nobody had ever done that, in part because only one other person, Jeff Bezos, has ever had $200 billion to lose. Of course, Musk’s losses weren’t in cash but in Tesla stock, the equity that provides the majority of his (currently roughly $144 billion) net worth. When Musk decided to buy Twitter, he got the money, in large part, by selling Tesla stock. As far as anyone knows, when Musk has bought much of anything, he has gotten the money by selling Tesla stock.
For Musk, this was a good system when Tesla’s stock was at the moon. The electric carmaker was one of the biggest market winners of the early stages of the pandemic. The stock closed at $27.89 on the last day of 2019 and $235.22 on the last trading day of 2020, before topping $400 per share in November 2021. (The actual trading price was often higher than I’m saying, because Tesla split its stock 5-to-1 in August 2020 and 3-to-1 in August 2021.) Musk owns lots of Tesla; even after a round of selling in December, he reported owning about 424 million shares, or around 13 percent of the firm. While billions of people were struggling through the opening years of the pandemic, Musk was able to go to work as Tesla’s CEO, watch a line go up on a chart, and enjoy becoming the richest person alive. His net-worth graph looks more or less the same as a visual of Tesla’s share price.
Now things are less good. Tesla’s stock lost 65 percent of its value in 2022, equivalent to more than $700 billion and a much worse showing than the major stock market indices put up in a bad year for everyone. By the last weeks of the year, it was clear that Musk’s purchase of Twitter and subsequent management of the platform had been bad for Tesla’s share price and infuriating to many of Tesla’s investors. He had ensnared himself in one of the most expensive bag-fumbles in the history of human enterprise.
Tesla’s stock is heading back up to start 2023, and so far, it is beating a mildly optimistic start for the rest of the market. But the stock has only started to claw back some of its extraordinary losses.
To what extent is Tesla in long-term trouble? And if it’s bad, how much of that badness is the result of Musk’s handling of his comparatively small but very public investment in Twitter? How much is within Musk’s control to fix, and which of Tesla’s problems are beyond his reach? In an attempt to answer these questions, I talked with Patrick George, a contributing writer at the Verge and an auto journalist who has covered Musk and Tesla for around a decade at Jalopnik, the Drive, and elsewhere. Our conversation about the headwinds facing Tesla is below, with some light editing for clarity and length.
Alex Kirshner: Tesla’s stock, for a while, has been higher than it quote-unquote “should” be based on traditional market dynamics. How much of this decline is just because gravity acted on a meme stock that got very, very high, and at some point, things have to go down?
Patrick George: Boy, that’s tricky to say. I mean, you’re not the first person who’s likened it to a meme stock. I think it’s a funny way to couch it. But there is a little bit of truth to that, in that even Musk himself has said that the stock is way overvalued. He’s been very clear about that. He’s also said he’s confident Tesla will be the most valuable company in the world. So, I think that he’s somewhat realistic on a stock price, but is also as bullish as anyone. You look at how this happened, and it’s a few different factors working together. I think that a lot of people will look at this and say, “Oh, it’s Twitter. It’s a Twitter distraction, that’s what is causing the stock to go down.” That’s really only a small part of the story.
The biggest factors that they’ve faced have been demand in China sinking since last year. Production issues in China, with all of China’s COVID-related lockdowns that have caused factory pauses. Those are the biggest issues here. I think the Tesla stock was affected by just the general reality check that we saw with tech stock prices last year, and then we get to the Twitter stuff around December. I think that’s when things start to get off the rails a little bit. So, I think that this market correction would’ve happened anyway, but I think that some of the Twitter stuff has probably accelerated it a bit in recent months.
Was Tesla penalized more by China’s COVID situation than other U.S. tech firms or automakers?
I’m reluctant to say. I mean, I want to say no to that. I wouldn’t say it’s more important to Tesla. We, as Americans, forget that we’re not the biggest car market in the world anymore. We haven’t been for a few years now. China is where all of the car companies are staking the hopes of their future on. That’s the biggest car market by far. So, as goes that market now, so goes the rest of the world. They’ve all had issues with supply chain disruptions, and also factory shutdowns, and foreign automakers to the Chinese competing with the growing strength of the homegrown Chinese brands.
So, I’m reluctant to say that’s just a Tesla-specific issue with regard to China.
When Elon has spoken or tweeted about Tesla’s challenges, he has framed them as a part of systemic, macroeconomic conditions that are not in his control. He’s talked about rising interest rates and brought up tax credits that don’t favor Tesla. How reasonable is the argument that Tesla’s problems are more societal economic headwinds and not Tesla-specific problems?
I think that what he’s saying is definitely part of the equation here. Very much part.
I think the whole auto industry is nervous going into 2023; 2022 was not great. They all, almost across the board, struggled with production, struggled to get cars out to people, and prices started skyrocketing. The average new car price is through the roof. Something like 45 to 50 grand is the average new car price. It’s [more than] 60 for an EV. They’re struggling to get their EVs on the road, and they’re nervous about ’23, too. If interest rates go up, people aren’t going to be buying cars, even if the pent-up demand is there. So, what Elon is missing, I think, is, if you’re a Tesla bull, you’re not going to want to admit that demand for these cars is weakening. I think that’s really antithetical to the Tesla story. He’s not going to admit that.
But I also think that the biggest challenge Tesla faces specifically is that every other automaker is getting into the EV arms race, in a big way. They’re deploying the playbook that Tesla used for years. These are very software-heavy cars, lots of screens, lots of performance. The charging networks are getting better and better. For the first time ever, we’re seeing the really true and viable competitors to Tesla coming out. There’s a lot more options than there were even a year ago, two years ago now. I think that’s going to be one of the biggest challenges he faces.
Tell me If I’m rambling.
No! You are not!
The other problem I don’t think has gotten enough attention, frankly, is that this is an aging lineup of cars. The Model S is now 10 years old. It’s had some updates in the middle of its life. The Model X is eight years old. We’re at six for the Model 3, and five for the Y. So, all of these cars are to the point that if this was another company, they would’ve been replaced, or more heavily updated by now. At Tesla, they do over-the-air updates and features get added off and on. So, these cars have been updated, but they look the same as they always have, for a very long time.
I think that American car buyers especially, we tend to like the newest, hottest thing. There are examples of cars coming out that look like their immediate predecessors, like the most recent Camaro, the most recent Mini Cooper, that tends to not help sales when something looks the same. I think that there’s a fear of stagnation here. When you look at what the Tesla bulls are posting, what they’re talking about, they’re hoping the Cybertruck is going to save the day a little bit. I’m not convinced it’s going to.
But the other thing I’m hoping you’ll add here, too, and again, if I’m rambling, just stop me—
You are not rambling!
I don’t think this is a moment that’s going to kill Tesla. It’s not the beginning of the end. It’s not anything like, “This is the do-or-die moment.” It’s more like, “Hey. It’s gotten really big, it’s facing traditional car-company problems, and it needs something up its sleeve that’s not another flamethrower.” I think it probably needs from its CEO the projection that he’s not distracted by Twitter, and that he is focused on the core business and the source of his wealth.
So if we were trying to pinpoint a reason or two or three why Tesla stock has gone down so much more than even all of these other stocks that took a beating, then it might just be that there are now so many more fish in this sea of electric vehicles, and that they’re coming out with new models, and Tesla isn’t?
If you’re looking for my main answer of why the stock went down, it’s China stuff, first and foremost. It’s an uncertain economy. And it’s Twitter shenanigans, probably in that order. Then the bigger problem, whether it’s about the stock price or Tesla’s ability to compete in the marketplace long term, is that all of a sudden everybody’s showing up to the game dressed the same way, I guess. Whatever metaphor you want to use there. Everyone is showing up for the party dressed the same way now.
Tesla’s stereotypical reputation has been that it’s the car you get when you want to show how forward-thinking you are about the environment, and also this company is cool and respectable. Is that an accurate characterization, and if it is, has Elon becoming more polarizing put stress on it?
You’re asking, what’s the Twitter stuff—what’s the impact been on that core Tesla buyer that we all understand? The techy, well-to-do environmental-leaning person. What’s the impact been there? It’s tricky to say. I think it’s impossible to quantify exactly how many buyers have been turned off to the brand because of this. I did talk to some people who were like, “I’m just done with him after this. Shame on us for buying the car, buying the stocks.” Then you talk to a lot of other people that just want an EV with great range, and a great Supercharger network, or great charging network, which the Tesla objectively has, and probably aren’t on Twitter or don’t care as much. That’s fair. Twitter doesn’t have a huge user base, but has an outsized impact on our discourse.
I think that there’s a lot of people that maybe just don’t really care. How many people are right—politically—leaning who are now Tesla converts? I bet there’s some. It’s equally hard to say. But when you look at other auto company CEOs, there’s a reason they’re not out there on Twitter sharing their takes about people’s pronouns. You know what I mean? Very cynically, you might consider that bad business to do that sort of thing. So, I think there’s at least some people who are feeling torched by the way that his politics have gone. But there might be an equal or greater number who just care about the product itself and aren’t really paying attention to extremely online news, like we unfortunately have to.
Yes, unfortunately. Elon has said Tesla shareholders will benefit from Twitter. That has not materialized. But do you entertain that notion at all, that him controlling this large communication platform could be a net positive for Tesla instead of what it looks like now?
My personal theory is that him buying Twitter had a lot to do with Tesla. Twitter has been the most vital means of promoting Tesla, making product announcements about the car company. That platform has been vital to his ability to do that. He doesn’t have a PR team anymore, he doesn’t have a marketing team, they don’t advertise. So, he will announce stuff, updates and things, on Twitter, often in people’s reply tweets, that sends the market skyrocketing. Or it shifts the markets because Elon tweeted a new thing that’s happening. So, him owning this platform that’s been vital to his company’s success, I think that that had to have entered the equation a little bit.
There’s been accusations, including among investors and bulls, that he’s distracted these days, that Twitter’s the new toy and that he’s losing interest in Tesla, and he spends his day just replying to people and posting memes. It’s like, “Well, you’re a very busy CEO. How are you doing this?” I think it’s a fair question to ask. But can Twitter be a net positive for Tesla in the long run? I’d say a lot of stuff has to happen for that. He’s trying to get Twitter to break even by the end of this year. He’s talked about doing this sort of catchall app ecosystem on Twitter, payments, et cetera, blah, blah, blah.
But that’s a ways off. That’s just ideas he wants to do, as opposed to a viable plan. So, if this ever does become some giant net good, whether it’s from a software side or just the communication side for Tesla, I think that’s going to be a couple years down the road, if it ever happens at all.
To whatever extent the Twitter stuff is a problem, that is somewhat within his control even if some damage is already done because people don’t like him personally. He could adjust his behavior or his public commentary, or he could sell the company and take a loss. But on the other problems—demand in China and elsewhere, supply chains, more competition in the EV market—is there anything he could change that would improve Tesla’s position?
This is purely my opinion and/or analysis, but going back to the challenge of having this older lineup of cars that faces a huge raft of new competitors: One thing that I think would really shift the conversation in his favor is that the next quarterly special event, he’s like, “Yeah. We have three new Teslas, four new Teslas coming out. Two or three new crossovers, and a new sedan, and something else.” Show that there’s more coming in the lineup than just the Cybertruck, maybe by the end of the year, and a rumored but not confirmed update to the Model 3. Car companies do this all the time. They’re like, “Here’s a preview of what our lineup is going to look like over the next five years.”
If he did something like that, and Tesla says, “We’re confident in our ability to deliver,” I think they would shut up a lot of critics, I really do. But that’s not what we’re seeing.
Another thing I was going to add: It’s like comparing Tesla to Apple. I think a lot of the reasons that this stock was so overvalued for such a long time is that so many people really did believe that Tesla had the potential to become the Apple of cars. By that, I mean a force so disruptive that it owns 50 to 60 percent of the market share, and the rest is just split up between some smaller players. Much like how our phone market is 50, 60 percent iPhone, and then the rest is Android made by a couple of different companies.
I think that they did think that would happen, and I don’t consider that a realistic look at the future. I think that Tesla stands to be a really big EV player, as it is now, if it keeps making the right product decisions. It’ll compete against a lot of legacy brands that get EVs right. A lot of legacy brands that don’t get that right are probably going to die off. But viewing it as just like, “Oh, this is going to be the car company one day,” I think it is a bit overly optimistic and at odds with how different the auto industry is from making phones.