(Bloomberg) — Just at the right time, Tesla Inc. skeptics are pushing back after this year’s meteoric $500 billion rally.
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Rival automakers rushing on growing demand for electric vehicles pose Tesla’s biggest challenge over the next two years, just as Elon Musk looks distracted through his high-profile businesses, social media and space travel to artificial intelligence.
So say respondents to the latest Markets Live Pulse survey. Of MLIV Pulse’s 630 global contributors, 54% flagged the increased risk of competition in the industry, while 26% singled out the behavior and decisions of its mercurial leader as a top concern for Tesla shareholders.
“Musk is such an unpredictable person that I would rank him among the top risks to Tesla,” Matthew Tuttle, managing director of Tuttle Capital Management, said in an interview.
As profit margins shrink, some 67% of survey participants said the billionaire executive should focus more on the automaker. Their warning follows a seemingly unlikely 128% rally in Tesla this year, fueled by renewed investor appetite for tech megacaps and Musk’s prediction that the era of fully autonomous vehicles is near.
Even though Tesla currently enjoys a huge lead over other companies, whether it’s an established automaker or a startup, much of its remarkably high market valuation is based on the assumption that it will be able to maintain this dominance in a future when electric vehicles are more common. .
Yet Tesla’s rivals are picking up the pace. Earlier this month, China’s BYD Co. set a second-quarter sales record and delivered 352,163 all-electric vehicles. It shows how quickly it gained ground over Tesla, which handed over 466,140 electric vehicles to customers around the world – also an all-time high.
The counter-argument is that many of Tesla’s rivals are still struggling with teething problems. For example, Ford Motor Co.’s electric vehicle sales in the United States slumped in the second quarter, after it had to suspend production earlier this year at the Mexican plant that builds the Mustang Mach-E.
Even so, analysts and investors warn that Tesla’s current advantage may quickly erode as government policies such as the US Cut Inflation Act encourage other automakers to adopt electric vehicles. . As rivals step up their game, Tesla’s notoriously expensive shares – trading at 75 times forward earnings – leave little room for error. By comparison, GM is trading at around 6 times estimated earnings and Ford at around 9 times.
“Competition is Tesla’s biggest long-term risk factor, and even poor execution in the crop of around 100 new electric vehicles coming to market this year will put pressure on Tesla,” said Craig Irwin, analyst at Roth Capital Partners. “The current lead over the competition is very real, but we need to understand how it is shrinking.”
Defending market share has a cost. About 63% of MLIV Pulse respondents expect the company to continue lowering prices in order to capture higher volumes. As a result, its high profit margin is already suffering. Further cuts will likely leave margins even thinner and close the gap with other automakers.
The impact of all the recent price cuts on Tesla’s earnings will be clear this Wednesday when the company reports its second quarter results. The average profit estimate for the quarter was down 29% from six months ago.
“Winning stocks increase revenue and margins. Both are necessary,” said Nicholas Colas of DataTrek Research.
Meanwhile, the ‘Musk risk’ embedded in Tesla shares was on full display last year when the billionaire went into a very public offering for social media platform Twitter and sold big chunks. of Tesla stock to pay for the acquisition. Sales pressure and concerns that Musk had become too distracted to run Tesla weighed heavily on stocks at the time.
Since then, Twitter’s own value has also declined. About 67% of respondents said they didn’t expect Twitter to ever be worth as much as Musk paid for it.
The MLIV Pulse survey of Bloomberg News terminal and online readers is conducted weekly by Bloomberg’s Markets Live team, which also runs the MLIV blog. This week, the survey asks: what’s next for Wall Street? Share your opinions here.
–With the help of Sungwoo Park.
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