Investors Might Be Losing Faith in Musk's Bold Predictions

Investors Might Be Losing Faith in Musk's Bold Predictions
Paul Allison, CFA

over 1 year ago2 mins

Mentioned in story

If there’s one thing Elon Musk loves, it’s a fanciful prediction. And because Tesla updates delivery numbers – the EV maker’s most important metric – every month, for investors, backward-looking quarterly results pale in comparison to what Musk has to say about the future.

And only an hour before the market closed yesterday, Musk tweeted: “I will not let you down, no matter what it takes”, and riled-up investors pushed the stock higher into the close. But that was just a warm up: the world’s richest man used the earnings conference call to predict that Tesla’s market value – around $700 billion today – will one day surpass Apple and Saudi Aramco’s combined – that’s more than $4 trillion. To top things off, he dangled a buyback-shaped carrot to the tune of between $5 and $10 billion next year.

Musk hasn’t disappointed Tesla’s shareholders yet, but those bold claims will need to be backed up because one thing’s for certain: the company’s valuation is demanding big things. And today, there are signs that confidence is waning. Tesla has an ambitious target to grow deliveries by 50% a year over a multi-year time frame, but it’s unlikely to hit that target this year after falling behind for a couple of consecutive quarters. And sure, Musk pinned the blame on logistical challenges posed by China’s lingering lockdowns, but the market’s starting to suspect that demand fatigue could also be playing a part. Just check out the chart above: it’s made by YipitData using various sources, and suggests that year-on-year growth for Tesla’s cars is slowing in the US. Plus, you can’t forget the Twitter saga. After all, it’s more than just an unwanted distraction for Musk: if Tesla’s shares keep falling, he might have to sell even more of his holding to fund the acquisition.

Tesla’s stock dipped by 6% after markets closed last night, meaning it’s lost nearly half its value from its high last year. And while that is dwarfed by the roughly 800% gain it’s seen over the last five years, it looks like shareholders’ faith is being tested that little bit more with each passing quarter.

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