Musk faces dwindling support from Tesla shareholders.
Ahead of the shareholder meeting next week, the atmosphere at Tesla is contentious. Both sales and stock prices are dipping, and CEO Elon Musk remains as contentious as ever. Nonetheless, some detect glimmers of hope.
Plummeting electric car sales, a plunging stock price, and then a dispute over a compensation package worth the GDP of Iceland and Malta combined – Tesla's CEO Elon Musk confronts serious challenges in the impending meeting. Particularly institutional investors are running out of patience with the electric vehicle manufacturer and are offloading their shares. "I'd say the game is effectively over," says Ross Gerber, whose investment firm Gerber Kawasaki Wealth & Investment Management held over half a million Tesla shares for over a decade and is now gradually selling.
The fundholders are summoned to their annual meeting on Thursday. On the docket is the 2018 pay package valued at $56 billion for Elon Musk, which a court recently invalidated. Musk is attempting to secure approval for the package through factory tours. Whether this will be sufficient remains to be seen. The shareholder counselling firms Instruction Shareholders Services (ISS) and Glass Lewis recently recommended voting against the package.
Other investors, such as Ron Baron, are backing Musk: "Without his tireless persistence, there wouldn’t be a Tesla," he contended. The vote is viewed as a referendum on Musk's management abilities. Shareholders fret that he is distracted by his other enterprises like SpaceX, Neuralink, and the short messaging service X and that his frequent provocative remarks are impairing Tesla's reputation and sales. Sales in the first quarter dropped for the first time in four years. On one hand, the present market slump for electric cars impacts Tesla's performance, while, on the other hand, the growing competition from established carmakers and new competitors from China affects them. In addition, the lineup is currently rather antiquated with gaps.
Tesla shares have plummeted about 30% since the beginning of the year and are more than 50% below their high in 2021. "It's like the fundamental data are drifting away from actuality," explains John Belton, portfolio manager at Gabelli Funds, who advocated selling Tesla shares in Q1. For years, investors have tolerated valuations more akin to a technology firm than a manufacturer. But now, it seems that the reckoning has arrived. Of the 18 public institutions that possess Tesla shares since 2019, according to information from investment analysis firm Morningstar, a 10 have scaled back their investments, while four of these have done so by 15% or more. Only five have purchased.
Therefore, Wall Street has not given up on Tesla yet. Among the analysts surveyed by LSEG, 19 advocate buying the stock, 10 recommend selling, and the average price objective is also greater than the current share price. Tesla continues to be the most highly-valued automaker in the world with a market capitalisation of over $560 billion. Toyota, the top automobile manufacturer, has a market capitalisation of around $334 billion. Tesla's valuation – in terms of earnings per share – is far higher than these leading technology firms. For example, Nvidia and Super Micro Computer are traded at 37.8 and 23.3 multiples, respectively.
Could robotaxis catalyze a shift for Musk?
In the auto industry, the ratio of profit to stock price is typically below 10. Risk-seeking investors see enormous growth prospects in Musk's concepts for robotaxis. "Wall Street foresees that the current weakness phase signals a long-term success narrative, and robotaxis play a central role in Tesla's winning combination," says Dan Ives, analyst at Wedbush Securities, who has set a $275 price target for Tesla – close to $100 more than the current price.
Musk has announced robotaxis news for August 8 and stated that he views Tesla less as an automaker and more as an AI company. However, Tesla's systems Autopilot and FSD (Full Self Driving) still do not meet the requirements for operation without a driver. Furthermore, Musk has previously teased about robotaxis that have not emerged. Given this, investors view the matter skeptically. Graham Tanaka invested in Tesla with his Tanaka Growth Fund in the region of two dollars around 2011. Over the past six months, he has liquidated his entire holding. Instead, he snatches up Nvidia shares because he has more confidence in the company in the field of artificial intelligence. "Tesla is too risky when you can buy Nvidia for half the price."
Read also:
In light of the impending shareholder meeting, Tesla's executives are focusing on selling Elon Musk's controversial compensation package, which was recently invalidated in court. Despite some investors, like Ron Baron, backing Musk, the majority of institutional investors are offloading their Tesla shares, citing concerns about Musk's management and focus on other ventures, leading to a dip in sales of Electric cars produced by Tesla Motors.
Tesla's domestic and international competitors are capitalizing on the market slump for electric cars and the growing competition from established carmakers, resulting in Tesla's obsolete lineup and shrinking market share. With Tesla shares dipping by 30% since the beginning of the year, some analysts like John Belton, advocating for selling Tesla shares, believe that the company's reckoning has arrived.
