The stock of the electric vehicle manufacturer declined by 65% in 2022. After receiving poor sales results, the corporation began the new year by taking another another dive, falling 12% in a single day.
That’s not just detrimental to investors. It’s also unfortunate for Tesla CEO Elon Musk, who lost his title as the richest man in the world despite having a large portion of his income linked to the automaker.
But why were those sales numbers so underwhelming? Tesla increased deliveries by 40% and reached new sales records. The business continues to rule the U.S. market for electric vehicles, which is expanding quickly as the world works to cut back on the carbon emissions that contribute to climate change.
The stock of the transformative company has plunged for the following four reasons.
It was a tough year for the entire auto industry
Not just Tesla experienced a decline in stock prices. In 2022, the overall stock market had a decrease, and every single automaker experienced a decline in stock prices. Major companies like General Motors and Ford experienced a 40% decline, while startups Rivian and Lucid experienced a more than 80% decline.
The general economy was facing the same challenges that other automakers were (inflation, rising interest rates).
They also began 2022 with part shortages that left dealer lots unusually empty, and they concluded it with ҽxorbitant vehicle prices that may be deterring potential consumers.
According to projections from Cox Automotive, U.S. auto sales will fall to decade-low levels in 2022.
Additionally, despite a 40% rise in sales from 2021 to 2019, Tesla’s sales were still below both its aggrҽssivҽ growth plans and analysts’ predictions.
Tesla faces new competition for electric vehicle sales
Despite a challenging year for the larger car industry, sales of electric vehicles rose in 2017. And Tesla keeps dominating the market for electric cars.
What is Tesla’s bad news? As competition increases. At the top end of the market, well-known brands like Mercedes-Benz, BMW, Audi, Lucid, Rivian, and Polestar are beginning to encroach on the turf of Tesla’s more expensive vehicles.
Meanwhile, the broad market for EVs is beginning to be eroded by cars like the Kia EV6, Ford Mach-E, and the revamped Chevy Bolt. Additionally, China, a crucial market for Tesla and other automakers, is becoming more competitive.
According to S&P Global Mobility, Tesla still accounts for 65% of electric vehicle sales in the United States. The percentage is, however, declining, something the stock market dislikes.
Elon Musk’s Twitter takeover is a headache for Tesla
Musk has long been the CEO of several businesses. However, his acquisition of Twitter last year is not comparable to his management of, say, SpaceX.
Many people want a Tesla because of the aura around Musk, who is considered by his supporters to be a genius and a visionary. From his position of authority atop the social media behemoth, Musk has now effectively turned into a professional Twitter troll, publishing provocative messages and gleefully endorsing some right-wing viewpoints.
According to a Morning Consult survey, between October and November 2022, Democrats’ net favorability of Tesla decreased by 20 percentage points while Republicans’ increased by 4 percentages. Given that liberal voters are more likely to desire to purchαsҽ electric vehicles, this may be affecting sales.
In order to finance his acquisition of Twitter, Musk also had to sell bιllιons of dollars’ worth of Tesla stock, which damaged the stock. Musk’s personal wealth decreased significantly, yet he still possesses more over $100 bιllιon.
To the dismay of some of his staunchest supporters, Musk’s time on Twitter is taking away from his time working on Tesla.
Many Tesla shareholders are pressuring Musk to do what he has promised and pick a new CEO of Twitter and resign down from the social media giant.
Tesla supporter and analyst Daniel Ives, who has questioned Musk’s management of the Twitter acquisition, wrote: “This is a moment of тruтh for Musk to handle the damage control now, or the harsh suffering will endure.”
It turns out that Tesla is an auto company
Another explanation for why Tesla stock dropped so much is that it was initially overpriced and is now trading at more reasonable levels.
Tesla once traded more like a high-flying tech stock than a company that makes products.
Musk encouraged this by referring to Tesla as a “software firm.” As the stock price surged to levels that could not reasonably be supported by Tesla’s sales or production data, the term “stratospheric” was frequently used.
For Tesla and the tech companies it resembled on Wall Street, prices have since dropped back down to earth.