Tesla investors try to ignore Musk’s many distractions

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Elon Musk now wants to buy Twitter after all. While this is good news for Twitter’s longtime shareholders, Tesla investors may still be hoping for some time. They need a little help, too.

Of course, Musk still has plenty of fans on Wall Street and behind the wheel. But some are growing weary that the world’s richest man can no longer focus on the company that gave him the bulk of his wealth.

Tesla ( TSLA ) reports earnings after the close on Wednesday. Shares are down more than 35% this year amid concerns that Tesla ( TSLA ) recently reported weaker-than-expected production and delivery numbers for the third quarter.

Wall Street expects very strong sales and earnings growth, with consensus forecasts calling for a more than 60% jump in revenue and earnings. But analysts have been cutting those estimates in recent weeks.

That’s partly because Tesla faces more competition in the United States from GM ( GM ), Ford ( F ), Volkswagen ( VLKAF ) and other electric vehicle newcomers like Rivian and Lucid.

There are also big challenges in China, where Tesla is going up against domestic EV rivals like Nio ( NIO ), Xpeng, and Li Auto. There’s also BYD, the Chinese car company backed by Warren Buffett’s Berkshire Hathaway ( BRKB ).

To be fair, the entire auto sector is struggling this year due to growing concerns about a global recession, rising energy prices and, of course, brutal competition.

Shares of major U.S., European and Japanese automakers are all down about 20% to 45% this year. And stocks of pure play EV companies (in the US and China) are down about 60%-80% in 2022.

Gary Black, Managing Partner of Future Fund and Tesla shareholder the tweet Concerns about Twitter in recent weeks have been a headache for Tesla investors.

In a tweet, Black said there are a number of issues Tesla is facing as a result of Twitter. Two of the biggest? Musk’s overriding Tesla stock sale to fund the deal and Musk’s distraction, especially since “Elon’s core competency is engineering/technology” and Twitter is more of an ad-based media business.

Tesla also doesn’t have a CEO. That means Musk has to take a hands-on approach at Tesla while also being distracted by his many other pursuits, such as SpaceX, The Boring Company, Neuralink, and potentially Twitter ( TWTR ).

The staggering delivery and production numbers also underscore how a slowing global economy (and possible recession) could hurt Tesla.

“Are we sure the problem is only supply and not (partially) demand related?” asked Morgan Stanley analyst Adam Jonas in a recent report.

Jonas added that “it would be unreasonable to assume” that the company can continue to raise prices without suffering demand, especially if the economy is slowing.

Demand could also be affected as Tesla faces even more competition in the US.

“To improve its competitive position, Tesla will need to expand its product range to meet the growing number of models from established automakers and new companies by the end of 2025,” analysts at S&P Global Ratings said in a recent report. .

Analysts at S&P are confident Musk can pull it off. They also recently upgraded Tesla’s credit rating. But they have accepted that it will not be easy. The margin of error is small. S&P estimates that electric vehicle models available in North America will exceed 100 by 2026, more than four times the current level.

“In the next 3-5 years, some of them could become formidable competitors to Tesla,” the analysts said.

Netflix investors know a thing or two about what can happen when a market where you were the clear leader before becomes dominant. Shares of the streaming giant are down more than 60% in 2022, making it one of the worst performers in the S&P 500.

The company will report third-quarter earnings on Tuesday, and investors will be watching to see if Netflix ( NFLX ) can stop the bleeding after losing subscribers in each of the first two quarters.

Netflix’s woes have led the company to do the previously unthinkable: announcing plans for a cheaper, ad-supported subscription plan last Thursday. Netflix will launch an ad-based version (also known as old TV) in November. It’s a bold decision, maybe not.

“We see a move to offer a level of ad support by the global streaming player that is not offensive and … a risk that remains underplayed,” said Jeffrey Wlodarczak, an analyst at Pivotal Research Group, who has a “sell” rating. in stock

Recession worries are causing many consumers to reduce the amount they plan to spend on streaming services, of which there are many today. That’s particularly bad news for Netflix.

Goldman Sachs analyst Eric Sheridan, who is also “sell” on Netflix, said in a report that he “remains concerned that additional subscription offers could cause users to ‘facilitate’ to the lowest-priced plans during the next consumer downturn. 6-12 months.” In other words, users are ditching more expensive plans for less profitable, cheaper subscriptions.

Also, Netflix is ​​no longer the only streaming game struggling. Shares of Disney ( DIS ), which also has an ad-based version for Disney ( DIS )+, are down nearly 40% this year.

In addition to Netflix and Disney+, there’s also Disney-controlled Hulu, Amazon’s ( AMZN ) Prime Video, Apple’s ( AAPL ) TV+, Peacock, Paramount+, and HBO Max. (CNN parent Warner Bros. Discovery is HBO Max.)

The turmoil of the economic slowdown has hit the entire media sector hard, with investors worried that consumers will refuse to pay more monthly subscriptions and that companies’ advertising budgets will also dry up.

Peacock is owned by Comcast (CMCSA), Paramount and Warner Bros. Discovery shares are down about 40%-50% this year.

Monday: Bank of America ( BAC ), Charles Schwab ( SCHW ), and BNY Mellon ( BK ) profit

tuesday: US industrial production; China’s GDP; Earnings from Johnson & Johnson ( JNJ ), Goldman Sachs ( GS ), Albertsons, Lockheed Martin ( LMT ), Truist ( TFC ), State Street ( STT ), Hasbro ( HAS ), United ( UAL ), and Netflix

Wednesday: US housing starts; UK and European inflation; earnings Procter & Gamble (PG), Abbott Labs (ABT), Travelers (TRV), Baker Hughes (BKR), M&T Bank (MTB), Ally Financial (ALLY), Citizens Financial (CFG), Northern Trust (NTRS), Comerica (CMA), Winnebago (WGO), Tesla, IBM (IBM) and Alcoa (AA)

Thursday: US Weekly Jobless Claims; US Home Sales; Ericsson (ERIC), AT&T (T), American Airlines (AAL), Dow (DOW), Philip Morris (PM), Union Pacific (UNP), Alaska Air (ALK), Nokia (NOK), Whirlpool (WHR) earnings, CSX (CSX), Snap (SNAP) and Boston Beer (SAM)

Friday: Japan’s inflation; Verizon ( VZ ), American Express ( AXP ), HCA ( HCA ), and Schlumberger ( SLB ) profit