Tesla investors await clues on demand, board actions and weigh downside risks in 2023

Tesla Inc. stock has lost half its value this year, dragged down by worries that Chief Executive Elon Musk has treated the electric-vehicle maker as “an ATM,” as one Tesla bull recently said.

Worries about cooling demand, particularly in China, add another layer of concern for Tesla
for the new year. Most investors are skeptical that the Tesla board would rein in Musk, as many view board members as deeply connected to him and unlikely to act independently.

Yet several on Wall Street view the two-year lows that Tesla can’t seem to shake off as a buying opportunity into a company that has a bright outlook.

“Recently, the stock just can’t catch a break in terms of investor sentiment,” said Garrett Nelson with CFRA. “There’s a growing recognition that the sooner Elon Musk assumes a chairman role at Twitter and appoints someone to take over the day-to-day operations, the better off Tesla investors will be.”

This week, Tesla bull Dan Ives minced no words in calling Musk’s ongoing Twitter involvement a “nightmare” and making the comment about Tesla as Musk’s ATM.

The billionaire bought the social-media company in October for $44 billion and promptly unleashed dozens of controversial and seemingly haphazard decisions, including laying off thousands.

China demand, production in focus

Tesla has denied reports about slower production in China. Recent price cuts, however, in both China and the U.S. point to a demand problem, analysts say.

There’s the threat of an economic slowdown, which is out of Tesla’s hands, but also there’s simmering worry that Tesla is about to face much more competition for electric vehicles, both from startups such as Rivian Automotive Inc.
and legacy auto makers such as General Motors Co.
and Ford Motor Co.
just as its narrow and expensive product line up hasn’t been refreshed in years.

If there’s any consolation, Tesla appears to have a firm handle on brand recognition among EV makers. A recent survey by Momentive, maker of SurveyMonkey, found that Tesla has the highest name-recognition among U.S. adults aware of EVs.

Higher odds of board action, share buyback

Board of directors need to make sure CEOs and other top executives can do the jobs for which they are compensated, said Marc Goldstein, head of U.S. research at proxy advisory ISS.

“Serving a CEO of multiple companies is certainly something that would raise eyebrows,” Goldstein said, speaking in general terms.

Even if the executive has the time to play both roles, board and executives never know when a deeper crisis might arise, suddenly requiring time in meetings and a CEO’s full attention, Goldstein said.

Besides being “chief twit” at Twitter and “technoking” at Tesla, Musk is also at the helm of SpaceX, among other companies and ventures.

“Sure, some people have more energy and require less sleep, but maybe not enough to make up for having an entirely separate job,” Goldstein said. And it’s harder if the businesses are disparate, he said.

Tesla board members may also keep an eye on Tesla employees working at Twitter. There may be good business reasons for doing so, and employees may be volunteering their time, but the board might want to check and make sure Tesla resources are used to benefit Tesla or at least not interfere with the business of Tesla, he said.

In other words, investors want to make sure that a CEO and board members “have adequate time to devote to the company,” and that the board is making sure that the CEO is sufficiently focused on the company, said Brianna Castro, proxy adviser Glass Lewis’ senior director of U.S. research.

If there are many personal connections between the board members and CEOs, it might make it harder for board members to communicate any concerns to the CEO, Castro said.

Shareholders are less likely to “rock the boat” if a company’s stock is rising. In Tesla’s case, now that the stock is down there might be an increase in shareholder activism, and upticks in support for shareholder proposals at next year’s general meeting, Castro said.

In recent days, some of discontent among Tesla investors have surfaced, leading Musk to tweet that he “will make sure” that his Twitter acquisition will benefit Tesla shareholders in the long run.

Tesla is looking to end the year down about 55%, compared with losses of around 18% for the S&P 500 index.

There might be plenty to be excited about in 2023. CFRA’s Nelson said that Tesla’s year-on-year earnings growth is likely to be “among the strongest” in the sector in 2023, to the tune of about 40% growth. That’s mostly thanks to the ongoing production ramp-up of the Austin and Berlin factories, he said.

Moreover, the selloff has increased the odds of a stock buyback announcement, likely in a range between $5 billion and $10 billion. And its U.S. vehicle sales have a “major tailwind” from federal EV credits, which certain versions of the Model 3 and Model Y will be eligible from Jan. 1 on.

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