Poor forecasting added to Tesla’s woes

Tesla shares fell 44% in December 2022 alone, as chief executive Elon Musk continues to spend a disproportionate amount of time at Twitter.

Tesla is, in so many ways, an outlier. Investors seem unable to decide whether it is a technology company or a car company, but however you look at it, 2022 was a year to forget. 

Its shares have fallen 73% from its record high in November 2021. The stock is down 69% in 2022, more than double the decline in the Nasdaq. Among major carmakers, Ford is down 46% and General Motors has fallen 43%. Similarly, Tesla closed the year as the worst-performing stock in 2022 among the most valuable tech companies.

Driving the drop

The factors behind Tesla’s poor performance are myriad. The December drop came after the Wall Street Journal reported that Tesla had to halt production for over a week at its Shanghai facility after a fresh bout of Covid cases within its Chinese workforce. Productivity was badly hit as a result. 

Meanwhile, the company has been discounting its vehicles across the globe in a bid to stimulate sales, expanding its offers in North America towards the end of 2022, having also done so in mainland China. These offers hint at a demand issue the company is facing. During the third quarter, Tesla had warned that its production during this period had exceeded deliveries by around 22,000 units. CFO Zachary Kirkhorn warned that the same was likely to happen in the fourth quarter as well. 

Pressure is also mounting in the used-car market, with the average price for a used Tesla dropping 17% from a high in July, and with used Teslas waiting longer than other makes before being resold. 

Investors atwitter

Then there are the actions of its chief executive, Elon Musk, whom investors are less than thrilled with after his acquisition of Twitter. The platform is bleeding cash, and Musk is selling Tesla stock in big chunks to compensate. According to filings in mid-December, Musk sold about 22 million more shares of Tesla, which were worth around $3.6bn (£2.96bn). 

While Twitter has eaten away at Tesla’s balance sheet, Musk’s behaviour on the social network has also done much to alienate its customer base. 

“Tesla’s brand has become more polarising,” Goldman Sachs analyst Mark Delaney wrote in a note to clients on 14 December. 

Delaney, who cut his Tesla stock-price target, said the company must shift consumers’ attention back to what Tesla does and away from Musk’s tweets.  

“Tesla’s brand has significant value related to the company’s leadership position in clean energy and advanced technology,” he added.

Lessons to learn

While some elements of Tesla’s troubles, such as Covid outbreaks and lockdowns in China, can be put down to poor luck, there are two key lessons here. The first is not to allow the brand or product to be too closely associated with one person – as much as celebrity and expertise can burnish a product, their behaviour can have a deleterious effect. The second is to forecast regularly and forecast well, so as to avoid issues such as Tesla’s overproduction of vehicles in 2022 driving down the price. 

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.