Tesla stock dropped 12 percent Tuesday, or about $47 billion in market valuation (which is roughly equivalent to the market valuation for legacy car maker Ford). This reduces the market valuation of Tesla by a total of $850 billion from its peak in November 2020.
Wall Street ceases to believe: Tesla has long defied market gravity, with a market valuation exceeding all other car makers. Tesla’s astronomical stock price now appears to have been based more on perceptions about founder Elon Musk than anything else. The company recently offered discounts on its cars for the first time, but nonetheless missed its goal for 2022 sales.
It’s not looking better in 2023: Market fundamentals are shifted against Tesla, which for many years was the only real option for anyone in the market for an electric car. Rising interest rates are putting monthly car payments beyond reach for many consumers. The US has a new $7,500 incentive to purchase an electric, similar incentives have ended in several EU countries, and two major Asian markets, China and Japan, have adopted policies to favor domestic manufacturers.
Now everybody is making electric cars: Legacy car makers are all now offering electric cars and have major expansion plans, particularly with the incentives in the recently adopted Inflation Reduction Act. As more brands enter the market, Tesla’s share is shrinking. Tesla held 33 percent of the EU electric car market in 2019, but now is estimated to have just 15 percent.
Elon Musk asks for help: Musk, who has been floundering at Twitter since buying the company (selling a lot of his Tesla stock to finance the purchase), has reportedly brought in Tom Zhu, chief of Tesla in China, to oversee US operations.