Why shares in Elon Musk’s Tesla dropped 9 per cent yesterday
For several years now, Tesla and Paypal founder Elon Musk has been able to do no wrong. Having founded the company which is doing for the electronic car what the iPod did for MP3 players, his status has been upgraded from "tech legend" to "tech god" – as shares in his company underwent a similar transformation.
So what on earth happened yesterday? Having risen almost 70 per cent since the beginning of 2014, yesterday the rise and rise of Tesla shares came to an abrupt halt, losing more than nine per cent of their value.
It all started at the beginning of September, when Musk – used to the frankness that comes with being a tech entrepreneur – breezily pointed out that "I think our stock is kind of high right now".
If you care about the long term, Tesla, I think the stock is a good price. If you look at the short term, it is less clear.
Yesterday, analysts at Morgan Stanley took it one step further, not only agreeing with Musk, but highlighting four "sobering factors" about Tesla. Musk fans, look away now:
- The market for electric vehicles is collapsing
"The rest auto industry's efforts to successfully commercialise pure electric propulsion have fallen well short of the marl," said Morgan Stanley. The other big car makers "have put major EV [electric vehicle] development on ice".
- But despite that, Tesla won't be able to meet demand in China
"We believe demand for the [Tesla] model S and X in China will far outstrip Tesla's ability to meet it, perhaps for many quarters or years to come." Partly because there isn't the right infrastructure for electric cars in China.
- There isn't really the infrastructure for use of electric cars to become widespread in the West, either
Mass adoption of electric cars "requires breakthrough that may be too unreasonable to take for granted as a base case."
- Driverless cars may overtake electric cars
"The rules are changing and at least some incumbent [car manufacturers] (ie. BMW) are not falling asleep at the (disappearing) steering wheel."