‘The clock has struck midnight’ for Tesla and Elon Musk

‘The clock has struck midnight’ for Tesla and Elon Musk

Elon Musk

How are Tesla’s (TSLA) corporate directors responding to this month’s massive delivery miss, a rash of layoffs, reports of an end to a lower-priced family sedan, and a sinking stock price? They are urging shareholders to make sure CEO Elon Musk gets a hefty pay package.

In a proxy statement filed Wednesday, Tesla’s board of directors made it clear that Musk is here to stay, even as calls grow louder from some investors and analysts for a leadership change. But Tesla’s rough week extends beyond questions of Musk’s stewardship and the board’s accountability. Tesla’s stock is priced for a mass-market, autonomous future, but the company is mired by a host of troubles standing in the way of that story.

“Tesla, as a stock, will suffer greatly with or without Musk,” said David Trainer, CEO of New Constructs, an investment research firm based in Nashville that doesn’t own shares of the automaker. “Musk’s chief value-add for Tesla over the last several years has been in distracting investors from the truth about the weakness in the business that has finally and unmitigatedly emerged.”

Tesla shares fell almost 3% Thursday and have slid more than 35% this year. And unlike its “Magnificent Seven” peers, which Wall Street has rewarded for announcing layoffs, Tesla shares tumbled further following news of a more than 10% reduction in global headcount.

Often layoff decisions trigger a bounce in the stock price, as it can signal greater cost-efficiency or a new strategic direction. But the Tesla layoffs prompted the opposite effect, signaling dysfunction and lowered expectations.

Tesla and its market valuation have come under increasing scrutiny even before its recent bout of challenges.

Earlier this year, Musk threatened to develop advanced AI and robotics technology outside of Tesla if he was not given greater influence over the company. His remarks raised questions about the long-term value of the company and rekindled criticism over Musk’s divided attention. Alongside leading Tesla, he serves as the CEO of SpaceX, the owner of X, and the founder of xAI, an artificial intelligence company.

Even putting Musk’s conflicts aside, the company’s early success as an all-electric pioneer, bending the entire auto industry toward its vision, is now working against it.

Tesla holds a sizable lead in market share and in the value of the company. Its market cap stood just under $500 billion as of Thursday.

But competition is everywhere. And while shaking up stodgy Detroit fueled Tesla’s rise, legacy car companies are churning out incremental innovations.

“It’s first-mover advantage has long since eroded,” said Trainer. “The competition has caught up and is surpassing Tesla at the high and low end of the market.”

Even Tesla’s most vocal backers are casting doubt.

“In our view the clock has struck midnight for Musk to now lay out the growth strategy, give realistic delivery and margin goal posts, discuss why significant layoffs now, and most importantly give a clear outlook to the Street around Model 2,” Wedbush analyst Dan Ives wrote in a note Wednesday.

Tesla’s long-anticipated entry-level vehicle, sometimes referred to as the Model 2, had been a crucial component of a grand vision to bring electric vehicles to the masses.

But Reuters, which first reported on the scrapped plans for a sub-$30,000 EV, said Tesla would instead focus on a self-driving robotaxi. Musk disputed the report but has since said that Tesla will debut its robotaxi on Aug. 8.

The recent shakeups, including the departure of longtime Tesla exec Drew Baglino, point to a riskier gamble for the company, analysts say.

Instead of mass-producing an affordable consumer EV, an updated blueprint would rely on building autonomous fleets and clearing the technological and regulatory barriers for fully self-driving vehicles. Tesla bulls contend that was part of the market appeal all along. And boosters point to the company’s enormous stockpile of data as a crucial tool to commercialize the next era of driving.

But the company’s autonomous ambitions coming closer to fruition weren’t enough to calm worries from longtime backers. “Without a low cost model to sell, there isn’t one financial model that any analyst has that works for Tesla,” Ross Gerber, the CEO of Gerber Kawasaki Wealth & Investment Management, said on X. “They must develop a low cost Tesla.”

Musk might have other plans. In the weeks leading up to Tesla’s June shareholder meeting, company leaders will be under pressure to detail what the automaker’s next phase will look like. A pivot might take shape and could even succeed. But the question will be if an altered vision can still sustain a towering stock price and a growth story to justify it.

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