Tesla (TSLA) has faced a lot of challenges lately. Recent negative headlines about Tesla can be summarized as:
- The National Highway Traffic Safety Association (NHTSA) discovered that Tesla’s Autopilot led to more crashes by disabling its software seconds before inevitable collisions.
- Elon Musk seems more interested in keeping his name in headlines than focusing on his businesses.
- Tesla has laid off hundreds of workers in its prized autonomous driving technology division.
These challenges would seriously damage most small companies, but Tesla has historically shaken off such headlines thanks to its loyal followers, brand recognition and advanced technology. Strong branding can only get a company so far, though. During one downturn recently, Tesla shares lost about $100 in value, falling from $750 to $660 over just three days.
What are the bears saying to hurt the share price?
Tesla Is Cutting Its Workforce
A few months ago, Tesla planned to cut about 10% of its salaried employees. Within the last week, the company followed through with that threat by letting go of 200 employees at its location in San Mateo, California. Investors responded by selling shares, and the price dropped in tandem.
There’s more to this layoff than meets the eye though as you’ll discover below.
Who Can Trust Elon Musk?
Bears point to an even bigger danger for Tesla: investors cannot trust Elon Musk to follow through due to his sometimes whimsical decision-making. At times, Musk has drastically altered his plans.
When Musk established early plans for The Boring Company to build a hyperloop in Las Vegas, his ideas included high-speed vehicles inside a tube. Over time, the project turned into a big disappointment. Today, it’s more akin to an underground, one-way road for Tesla cars.
Musk’s proposal to buy Twitter also shows that he can be easily distracted from his core businesses: Tesla and SpaceX. Bears wonder whether he ever intended to buy the company or just wanted to create the “bot” controversy to get more people talking about him. To be fair, bulls cite the bots as a real issue.
Bears Point to Musk’s Ego As Problematic
This isn’t the first time Tesla has suffered from Musk’s desire to retain his celebrity status. In 2021, Nasdaq.com published a post titled Elon Musk’s Cult of Personality Is a Problem.
Right now, many people seem to think that Elon Musk is a genius with cool ideas and a fresh perspective. They believe in Tesla because they believe in Musk.
What happens when Musk does something truly ugly to get attention? Something so upsetting that even his biggest fans turn on him? It may only take one poorly timed tweet or podcast appearance.
For those who believe in Musk because he’s the “richest person in the world,” that could also change overnight. If Tesla shares tank, Musk’s wealth goes with it.
Jeff Bezos and Warren Buffett don’t have this problem because they haven’t pursued celebrity as rabidly as Musk has. They built wealth more slowly without relying so much on the cult of personality.
Tesla needs stronger leadership from serious executives who don’t let the CEO distract stakeholders from the company’s focus: building excellent electric cars, solar panels, batteries, and other technologies that could contribute to a greener future.
Should You Buy, Sell, or Hold Tesla Shares?
The biggest danger for Tesla however could relate to its autonomous driving technology. Musk cited that technology as pivotal to the success of Tesla. Cutting a few hundred employees in that area is a sign of serious concern to shareholders that perhaps the technology is not as robust as first imagined.
When you examine the valuation models of the most bullish Tesla investors, such as ARK Invest, you will see autonomous driving is a scalable growth lever heavily relied upon to sustain already lofty financial metrics. If the bottom were to fall out of that growth lever, it could well be the biggest danger Tesla faces, and a crushing blow to current shareholders.