Elon Musk’s argument about Tesla stock falling because the Fed has raised interest rates is flawed.

Erika Ramirez/Insider
Elon Musk claimed that Tesla stock was crushed because the Fed raised interest rates this year. According to Gary Black, a Tesla investor and Future Fund manager, Musk’s argument is flawed. “Since TWTR was closed, TSLA -38% vs NDX -1. Black tweeted that NDX would drop the same amount if it were all int rates.

Tesla stock is down 61% so far this year. Elon Musk must now turn his attention to the electric car company and not to his newly acquired social media platform.

Many Tesla investors, including Ross Gerber and Gary Black, have attributed the steep price drop in Tesla stock to Musk’s inability to be a full-time CEO, given that he manages SpaceX, Tesla and Twitter.

Musk claims that Tesla’s stock price drop can be attributed to Federal Reserve’s aggressive interest rates hikes this year, rather than Musk’s outside business activities.

Musk tweeted Tuesday, “In simple words: As bank savings account interest rate, which is guaranteed, begin to approach stock market return, which cannot be guaranteed, people will more often move their money out stocks into cash, causing stocks to fall.”

Musk also shared these sentiments last week in a tweet, responding to Tesla’s recent stock market decline. He said: “Tesla executes better than ever!” The Federal Reserve is not under our control. This is the real problem.

Musk is correct about the fact that investors can find attractive yields elsewhere and less risk when they pay higher interest rates. However, Musk’s blame on the Fed for Tesla stock price woes is flawed according to Black, who is a managing partnership of The Future Fund which includes Tesla at its top position.

“Elon – it’s impossible to compare a short-term bank with a long-term $TSLA stock. TSLA is down -38% compared to NDX [Nasdaq100] -1% since you closed on TWTR Black sent a tweet to the billionaire Tuesday asking for all rates of interest.

Black points out that although higher interest rates have no doubt weighed heavily on stocks this past year, including tech-heavy Nasdaq100, which is down 32% so far in the year to-date, it doesn’t explain Tesla’s 39% drop since Musk bought Twitter.

The Fed is now closer to the end than it was at the beginning of its interest rate increases since Musk bought Twitter. At its December FOMC meeting the Fed raised interest rates only by 50 basis points, which is a significant difference from its previous four rate increases of 75 basis points.

Even ARK Invest’s Innovation ETF is only 13% down since Musk bought Twitter.

This supports the notion that while higher interest rates may not be beneficial to a company like Tesla due to a variety of reasons, the majority of the recent move is related to investor concerns over Musk’s management and mismanagement of Twitter. Musk sold billions of dollars worth of Tesla stock in order to finance the acquisition of the social media company, which, according to Musk is still experiencing negative cash flows.

Despite Tesla’s fall, Black still believes in Tesla and continues his ownership of it. He argues that Tesla is currently trading at its lowest ever valuation. Cathie Wood, who is still bullish on Tesla, has been buying the stock’s dip throughout the quarter.

Business Insider has the original article.
—————————————————————————————————————————————
By: mfox@businessinsider.com (Matthew Fox)
Title: There’s one big flaw in Elon Musk’s argument that Tesla stock is falling because the Fed is raising interest rates
Sourced From: markets.businessinsider.com/news/stocks/elon-musk-argues-tesla-stock-falling-fed-interest-rate-hikes-2022-12
Published Date: Wed, 21 Dec 2022 18:04:47 +0000