Is Tesla a car maker or a tech company?



Being the world’s richest man is not for everybody. It takes a blend of determination, hard work and talent. Being born to an already wealthy and well-connected family also helps, as does attending the best schools and universities. But more than anything else it takes luck, and being in the right place at the right time. In the case of Elon Musk, it took all the above, but mainly it took founding and successfully running an electric vehicle manufacturer with perfect timing. So much so that this car maker/ tech company became the greatest beneficiary of the pandemic-era abundance of cheap money that inflated the value of technology stocks.

In November 2021, the price of Tesla stock touched an all-time high of $414 per share, with the market capitalisation of the firm exceeding $1.2trn. This was more than the market cap of almost all other car manufacturers put together, making Elon Musk the richest person in the world at that time with a net worth of $340bn. Since then, Tesla lost three quarters of its value. Just last month, it lost 40 percent, shrinking Mr Musk’s fortune by $200bn.

At the peak of its value, in November 2021, Tesla was seen by investors as a technology company promising visions of a futuristic world full of electric self-driving vehicles. Since then, with the tightening of monetary policies, money became more expensive and investors more careful. The result is a sharp contraction in the technology sector, with the Nasdaq index losing more than 32 percent in 2022. The change of mood means that investors now look at Tesla differently - as a car manufacturer rather than a technology company. And this is one of the reasons why Elon Musk is no longer the richest man in the world. Investors stopped dreaming about a Tesla driven future, focusing instead on a present riddled by supply chains issues, expensive overheads and increasing competition from other manufacturers.

Against this background, Mr Musk’s decision to purchase Twitter and appoint himself as chief executive may have been ill-advised. Saying the whole episode has been bad for the share price of Tesla is an understatement. Investors fear that the distractions of Twitter will stop Mr Musk from giving management of the car manufacturer his full attention, damaging the firm’s prospects. There is also the risk of brand damage. Tesla buyers tend to be environmentally conscious, left leaning progressives, who may not enjoy the recent libertarian stance of Elon Musk.

Looking ahead, what are the prospects for Tesla? If you think of it as a technology company which, at the time of writing, is worth 75 percent less than it was 12 months ago, then the prospects are not that great. The firm is unlikely to get anywhere near the previous market cap in the foreseeable future. However, if you think of Tesla as a car company, then it is fair to say it is not doing too badly. Output grew by 40 percent in 2022, with the delivery of 1.3m vehicles. A smaller and cheaper model is currently in development, and 2023 will also see the release of the much-awaited Cyber Truck. Tesla is still worth $340bn, almost as much the next three most valuable car manufacturers put together. Not doing too badly for a vehicle maker.

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