Tesla: accumulated problems

Tesla received the latest blow on Thursday. That day it was announced that the company’s shares had been removed from the S&P 500 sustainability index as of early May. In Friday trading, the stocks fell more than 6 percent. Since the beginning of April, the market value of the electric car manufacturer has fallen by more than 500 billion dollars – almost twice the market value of the Swiss pharmaceutical giant Roche. Tesla is currently worth around 690 billion dollars on the stock exchange.

At first glance, it may seem surprising that the leading electric car manufacturer has dropped out of a sustainability index. However, these indices not only focus on environmental aspects, they evaluate sustainability as a whole with the factors environment, social, governance (environmental, social and good corporate governance). The index operator acknowledges that Tesla is pioneering electric cars and expanding into battery storage and solar arrays.

The transparency is the problem

But other factors contributed to the exclusion. For example, the lack of transparency: Tesla does not publish any details of its strategy to reduce carbon dioxide emissions, nor does it publish an internal code of conduct. Allegations of racism, complaints about poor working conditions and problems and sometimes fatal accidents with the Tesla driver assistant would also argue against a better ranking.

Elon Musk described the investment category in a tweet as a “swindle” and accused the index provider Standard & Poor’s of having lost its integrity. Musk vented his anger on Twitter that the largest US oil company Exxon Mobil received a top rating from S&P as one of the ten best companies in terms of sustainability, while Tesla no longer even made it into the index. Tesla had previously criticized ESG criteria as “fundamentally flawed”.

Keyword Twitter: The takeover plans for the short message service are also weighing on Tesla’s share price. Elon Musk has sold around $8 billion worth of Tesla shares for his bid. In addition, he may have deposited other titles from his own portfolio to secure loans. With the “restoration of free speech” on Twitter and the recent announcement that he is turning his back on the “woken” Democratic Party and will support the Republicans in the future, Musk is likely to anger many potential Tesla customers from the left-green camp in the USA to have.

Musk had predicted that personal attacks on him would increase after this change of party. In the past few weeks, the media has reported that Musk allegedly sexually harassed a Space-X employee in 2016.

Growth is faltering in China

But even in addition to these supposedly “personal” attacks on Elon Musk, Tesla still faces numerous obstacles on the way to happiness. The rigorous lockdown in China has dealt Tesla a double whammy: On the one hand, the closure of ports and numerous suppliers on the mainland has severely affected production in China. On the other hand, Chinese consumers are much more pessimistic about the future due to the signs of weak growth and will probably initially demand significantly less demand for luxury items such as Tesla’s electric sedans.

Despite these severe stock market setbacks, Tesla shares are still far from a bargain. The 2022 price-to-earnings ratio remains at a very high 55. The carmaker would have to earn 55 times its forecast earnings for the current year to offset its market value.

The virtual monopoly is crumbling

However, such confidence is only justified if one assumes that Tesla will dominate the car market of the future in the same way that Apple dominates smartphones or Amazon does online trading. But the traditional car manufacturers with their existing sales organizations have woken up and are expanding the booming electrical sector. The Tesla Model 3 Sedan and the SUV Y are responsible for 95 percent of sales. The launch of the next model, the pickup truck, has been postponed several times and is now expected in 2023.

One must not forget: Tesla has a virtual monopoly in the electric vehicle market, especially in the USA. In the first quarter, the company reported a profit of $3.3 billion on quarterly sales of $18.8 billion. The sale of environmental certificates to competitors made a contribution of one fifth. Compared to the same period last year, profit increased almost sevenfold, the number of cars sold increased from 180,000 to 310,000. In March of this year, Tesla opened a new Giga-Factory near Berlin. However, pressure from competitors and the slowdown in economic growth will make it difficult for Tesla to maintain this pace of growth.