Tesla’s declining share price does not reflect Musk’s Twitter obsession. The entire EV industry is slowing down.

Tesla investors are having a difficult time with Elon Musk’s Twitter deal. Getty
Tesla’s share price was cut in half, and a distracted CEO isn’t the only problem. The industry is also facing rising costs and waning investor interest.

Tesla shareholders have cause to be disappointed. His EV company’s market capitalization has fallen to $500 billion, after it reached over $1 trillion last fiscal year. This is because Elon Musk has been more preoccupied with Twitter. Its share price is currently at $126.31, a 60% decrease since the start of the year.

Tesla shareholders are not only concerned about Musk’s debt-fueled, $44 billion Twitter buyout. Tesla’s troubles are indicative of larger issues plaguing EV markets.

Market conditions are being negatively affected by high interest rates, inflation, cautious investors, cash burn, and waning demand.

These two are the most significant problems for Tesla, Rivian and competitors such as Arrival and Lucid Motors. They slow down the market, even though the world is racing to achieve its net-zero emission targets.

The short-term demand is decreasing

Thomas Ingenlath (CEO of EV maker Polestar) stated in September that “only 1.5%” of vehicles on the roads today are electric. This is clearly an EV bubble and not an EV boom.

According to emails leaked by Insider’s Alexa Saint John, EV startup Lucid is having trouble with canceled orders.

Mercedes and Tesla have reduced costs for certain EV models in China, the largest EV market. Last month, 786,000 new-energy vehicles were registered in China, according to data from China Association of Automobile Manufacturers. This is a 72.3% increase year-on-year, but it still marks the second-lowest month of sales this year.

KPMG’s recent survey of industry executives revealed a decrease in bullishness. EV adoption is projected to be between 10-40% and 2030, compared to the optimistic estimates of 20-70% they made last year.

As a clean alternative to fossil fuel-based internal burning engines, EVs will in the long term need to be more popular than their oil major counterparts.

Global economic uncertainty has pushed investors away speculative EV stock investments and towards safer stocks such as oil and gas giants.

Benchmark Mineral Intelligence CEO Simon Moores stated that inflation and the current energy crisis are primarily caused by Russia’s invasion in Ukraine and a lack long-term energy planning. “This is not an issue that will be solved quickly.”

Tesla’s stock price fell below ExxonMobil’s this week, dropping to $435 billion on Tuesday, compared to ExxonMobil’s $439 billion, according to the Financial Times.

High cash burn

Many new players struggle to keep costs down in today’s economy.

After warning it that it might run out of cash in less then a year, Arrival, a British EV company, saw its shares fall by a third last month.

Lucid Motors, which is Saudi-backed, has seen its capital expenditures go up. Its capital expenditures were $290.1 million for the three months ending September, compared to $92.8 million last year. This week, the firm raised $1.5 billion via a private sale to its majority shareholder, Saudi Arabia’s Public Investment Fund. The move was done to “strengthen it balance sheet and liquidity position.”

Because infrastructure building takes so much money, cash burn is inevitable. Moores said that it is a sign of the fact the entire electric vehicle ecosystem was being built from scratch.

The impact of inflation is a key reason for cash burn; Moores pointed out that Tesla may have had a better time managing costs than its industry counterparts by having battery plants that solved major supply chain problems.

AlixPartners released a June report that noted that the US cost of raw material for internal combustion engines is $3,662 per car, while the US cost of EV raw-material — which includes batteries such as cobalt and nickel — is $8,255 per car.

Moores stated that “other EV manufacturers won’t get the same financial benefits as Tesla due to Elon’s constantly-evolving masterplan.”

Business Insider has the original article.
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By: hchowdhury@insider.com (Hasan Chowdhury)
Title: Tesla’s cratering share price goes beyond Musk’s preoccupation with Twitter. The entire EV market is slowing down.
Sourced From: www.businessinsider.com/elon-musk-twitter-tesla-ev-market-slowdown-2022-12
Published Date: Thu, 22 Dec 2022 17:44:13 +0000