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On the verge of Halloween, Elon Musk faces a real-life financial scare as his net worth takes a staggering $7 billion plunge within a span of just under five hours of trading on October 30. Tesla shares plummeted from their previous close of $207 to $197, a 5% drop, affecting Musk’s 715 million shares and vested options significantly.
This loss is a continuation of a rapid decline that began following Musk’s unveiling of Tesla's less-than-stellar Q3 earnings and bleak future outlook after market close on October 17. Since then, Tesla’s shares have depreciated by 23%, wiping out a monumental $189 billion in market capitalization and diminishing Musk’s wealth by a whopping $41 billion.
The causes behind this steep one-day decline are speculative. However, the announcement from Panasonic, Tesla’s largest battery supplier, about scaling back production due to decreased EV demand, could be a contributing factor.
Alternatively, the markets could be adjusting their perception of Tesla, viewing it more as a traditional car manufacturer rather than the tech giant Musk has consistently presented, promising substantial software-sized profit margins.
Q3 Earnings: Tesla's Profit Plunge
In the Q3 earnings report, Tesla’s profitability seems to be aligning more closely with its automotive counterparts, with operating margins (excluding environmental credits) dropping to 5.3%, a significant decrease from 16.1% in the same quarter the previous year.
Musk himself has tempered expectations for the highly anticipated cybertruck, conceding that the vehicle’s complex and costly production has set the company back, stating, “we shot ourselves in the foot”.
He provided no reassurance of rebounding profit margins, pointing out that with the current surge in interest rates, Tesla may only sustain sales volumes by continuing to cut prices. While Tesla is slashing prices to maintain sales, both GM and Ford are putting the brakes on their EV rollouts.
In the past few weeks, these automotive giants have announced significant curtailments in their ambitious EV plans. GM has postponed a $4 billion investment for retooling its Orion assembly plant in Michigan, consequently delaying the launch of their electric pickup trucks.
Similarly, Ford disclosed a substantial loss in its electric segment and acknowledged delays in its EV investments. Musk’s grave Halloween season is emblematic of a broader trend in the EV market, where enthusiasm seems to be waning amidst economic challenges.
Only time will tell if and when the tide will turn, ushering in a new wave of optimism for the “cars of the future”. Meanwhile, the market’s grim revaluation continues to haunt the fortunes of Tesla and its iconic leader.