Tesla CEO Elon Musk is a visionary. Few would dispute that he is one of the primary reasons for the electric car maker’s enormous success. But now that
shares have plunged nearly 30% so far this year, some are wondering anew if Musk’s many other activities, including his ownership of the social-media platform X, are starting to hurt Tesla.
“During the 2015 to 2021 growth period, he seemingly had only one focus. Musk was all in at Tesla,” said Ross Gerber, president and CEO of Gerber Kawasaki Wealth and Investment Management, which owned about 378,000 shares of Tesla as of the end of December. But Gerber thinks that changed after October 2022, when Musk bought Twitter, which he subsequently rebranded as X.
“Tesla stock enjoyed a premium valuation based on the perception that Musk would keep innovating and because the company had so much potential,” Gerber said, adding that he now thinks Tesla shares may need to fall to about $120, 30% below their current price, before they are an attractive buy again. Even at that level, Tesla would still trade at nearly 45 times the per-share earnings expected for 2024, which is hardly cheap.
Typically bullish Wall Street sell-side analysts seem to be concerned too. According to TipRanks, of the 34 analysts who cover the stock for brokerage firms, just 10, or 29%, rate it at Buy, while the average among
companies is about 54%. There are 18 Hold and six outright Sell recommendations.
One of the analysts most bearish on the stock, Gordon Johnson of GLJ Research, has bashed Tesla as “nothing more than a struggling car company.” The fact that analysts are predicting a year-over-year earnings decline for Tesla in 2024 doesn’t help matters.
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If Musk was squarely focused on Tesla, this might not be as big an issue. But Musk also is busy running SpaceX, Neuralink, the Boring Company, and the relatively new xAI artificial intelligence start-up behind the Grok chatbot, a rival to OpenAI’s ChatGPT. Tesla didn’t respond to a request for comment, but Musk has pushed back in the past against the idea that he is distracted.
Musk wrote in a post on X in May 2022 that he was spending less of 5% of his time on the Twitter acquisition, saying “Tesla is on my mind 24/7.”
AI could wind up being the main new area that takes Musk’s focus away from building electric cars and trucks. Musk has recently filed a lawsuit against OpenAI and its founder Sam Altman, arguing that OpenAI is now “a de facto subsidiary” of
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Musk has also said he could take Tesla’s AI investments to another company if he isn’t granted more control of Tesla’s voting stock. Those comments rubbed some people the wrong way, particularly because there are concerns that Tesla’s board does little if anything to rein in Musk.
“There are questions about the independence of the board at Tesla,” said Katie Self, investment manager of thematic equities with Pictet Asset Management. “And Musk’s threats to develop AI elsewhere is not good governance.”
Pictet runs an environmental, social, and governance-focused investment portfolio, but doesn’t own Tesla within it. Self said governance concerns are a part of the reason. Musk’s brother Kimbal is one of Tesla’s board members. So are Musk friends such as venture capitalist Ira Ehrenpreis and former
CEO James Murdoch.
Kimbal Musk, Ehrenpreis, and Murdoch didn’t respond to requests for comment. (Murdoch’s brother Lachlan is chairman of
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the owner of Dow Jones, which publishes Barron’s.)
Self said she also has reservations about the stock’s valuation and competition in the electric-vehicle market in China. Price cuts meant to boost sales have reduced Tesla’s profit margins, though the company has recently begun to raise prices.
Wall Street is also nervous that there is no clear-cut succession plan at Tesla, following the 2023 departure of its widely respected chief financial officer, Zach Kirkhorn. The company also somewhat unusually doesn’t have a chief operating officer. Gerber said that investors would probably cheer if Musk were to step down as CEO and act more as a chief product officer because that might mean Musk would no longer be “holding the company hostage to his whims.”
“Tesla is stuck,” Gerber said. The question now is whether Musk can fix that.
Write to Paul R. La Monica at paul.lamonica@barrons.com
