Tesla Stock Fallout.

Science/Business | David Wu | January 17th, 2023.

Tesla, the pioneer and the best at producing and selling electric cars, had its worst stock year in 2022. Its value sky-dived 69% from January 1st, 2022, to December 30, 2023, and that’s not all the crash has to offer. On January 2, 2023, Tesla lost another $50 million dollar valuation after missing the fiscal Q4 car delivery target; the value loss is equal to half of Ford Motor’s entire valuation. Tesla stocks left the other industries in the dust after COVID-19, rising 1,136% from the beginning of the pandemic to the end of 2021. How did tesla lose almost 70% of its thousand percent boom?

The return on stocks genuinely relies on two risks: systematic and idiosyncratic. The former is the relationship of a stock with the overall US market (S&P 500), and the latter is related to the events happening in the microeconomics of a stock’s company. For instance, when Steve Jobs passed away, Apple Inc. stocks fell under idiosyncratic risks; however, when the United States economy entered the 2008 Financial Crisis, Apple stocks fell under systematic risks. 

With the analysis of the systematic risks of Tesla stocks, it became clear that the overall market did horrendously badly in 2022. Dow Jones and S&P 500 both had their worst year since the 1929 Great Depression and 2008 Financial Crisis, partly due to Federal Reserve’s aggressive interest rate hikes to curb rising inflation. Tesla car sales depend on the state of the economy, so it may seem that the cumulative US economy led to the downfall of Tesla stocks; however, that won’t be the whole story. Using a common investment figure Beta (the slope of the regression line when plotting overall market return on the x-axis and specific stock return on the y-axis), Tesla's Beta is high, meaning that its stock reacts more sensitively to the fluctuations of the general trends. The high residual of the 2022 dot hints at Tesla’s great idiosyncratic risk. 

Tesla CEO and Founder Elon Musk had a spectacular year (sarcasm). The waves of uncertainty concerning the Twitter purchase and deals left Tesla investors in hopeless ventures. From the investor’s perspective, the acquisition of Twitter is detrimental to Tesla because Elon Musk’s focus would shift towards Twitter and other side projects. Elon Musk already has SpaceX, Tesla, Boring Company, and T.I.T.S. to work on; adding Twitter decreases the overall viability. To make matters worse, the controversial laying-off of workers and Trump account reactivation led to further fallouts in Twitter and Tesla. In other words, the 2022 idiosyncratic variance for Tesla was astronomical.

In 2023, a mist of uncertainty still hangs over the Tesla investment trail. Tesla’s valuation now interlinks with Elon Musk’s every action, making the investment process unpredictable. Even though the company’s problems are apparent, and its stock price has collapsed, Tesla is still overpriced. Before 2022, the company’s market cap sat at $200 billion, while General Motors and Ford Motors, the legacy of the US auto industry, only had a combined market cap of $100 billion. Today, Tesla retains a still-too-big $354 billion market capitalization. For emerging technology stocks like Tesla two years ago, it is easy for them to become an overpriced bubble and burst without warning.