Tesla won't dominate the auto industry, because no one will

Another market that investors incorrectly hoped would be winner-take-all.

Photo by dcbel on Unsplash

Howdy, everyone! I’m back in the U.S., and regular posting will now resume.

Everyone’s talking about Tesla’s big stock price decline. The fall has been pretty spectacular — it’s down about 70% from its peak last November, and about 60% since a more recent plateau this September.

A tech company being down a lot in 2022 is hardly big news — most stocks in the sector have fallen. But Tesla’s case is especially dramatic — of other big tech companies, only Meta’s 68% drop comes close. Tesla’s plunge is also much more recent, as most of the sector took its lumps in the first half of the year.

It’s tempting to blame the stock’s poor performance on interest rates. The auto industry is very sensitive to borrowing costs, since customers take out loans to buy cars, and since car manufacturing itself is a very capital-intensive business. But Tesla’s decline has been much starker than that of other auto companies — GM is down 47% and Ford is down 54%. Also, like tech stocks, the non-Tesla automakers saw their stocks go down in early 2022, when it first became apparent that interest rates were going to go up fast.

A more plausible culprit is the adventures of Tesla’s founder-CEO, Elon Musk. Musk is now the chief executive of three big companies at once — Tesla, SpaceX, and Twitter — and appears to be prioritizing the latter in terms of where he’s spending his time and energy. An absentee CEO is never a great sign for a company, and unlike in the case of SpaceX (whose operations are largely run by Gwynne Shotwell), Tesla doesn’t seem to have anyone else capable of replacing Musk. Furthermore, Musk borrowed a bunch of money to buy Twitter, and although the details are murky, his recent sales of $22.9 billion of Tesla stock might have been done to cover Twitter loans or otherwise bolster the social media company’s flagging business model. A car company that its CEO regards as an ATM, as analyst Dan Ives put it, doesn’t seem like a strong prospect for rapid growth. Nor is it exactly a vote of confidence for the CEO to divest part of his stake in his company when it’s still young and supposedly primed for growth. (Musk, for his part, has promised not to keep selling Tesla stock.)

But there’s a third — and, I predict, ultimately more important — reason why Tesla’s star has faded this year. Competition is ramping up. EVs, which just a few years ago were a niche product for environmentally conscious rich people, are now the future of the entire global auto industry. Everyone from old-line automakers like GM and Volkswagen to hard-charting state-backed Chinese behemoths to fast-follow startups is piling into the industry. And there are many reasons to believe that this surge of competition will lead to a permanently divided auto market, rather than to one “last company standing”.

Why there is no “Apple for cars”