A lot of ink has been given to Tesla’s share price plunge and how Musk’s net worth has lost about 1/3 since the peak price of $1,243.49/share on Nov. 4, 2021. Of course, the Twitter acquisition is also making headlines. Less attention has been focused on the robust, consensus insider selling at Tesla. Elon is the top seller by far. However, he is joined by his brother Kimbal, Tesla’s CFO Zachary Kirkhorn, Robyn Denholm (the chairman of the board) and others.
Starting on Nov. 8, 2021 (at the high), Musk began selling. Between November 2021 and April 28, 2022 (when Tesla was at $877/share), Musk cashed in over $23 billion out of Tesla. Additionally, Musk received a CEO bonus compensation package for operational milestones and for keeping the market value above $650 billion, which are worth about $23 billion in stock options that will be vested over the next 5 years (source: Reuters).
Will He or Won’t He Buy Twitter?
Should you be selling, too, or is Musk simply selling a small portion of his net worth to buy Twitter and diversify his portfolio?
With Tesla stock down 43% on the year and the year-over-year revenue growth running at a hot 80.54%, it’s easy to think that holding on will be a winning strategy. However, when evaluating which way prices are headed, it’s important to consider a few valuation tools, as well as where the general marketplace might go. While a rising tide lifts all ships, a crashing wave can destroy them.
With a market capitalization of $730.72 billion, Tesla is now worth more than Ford ($52.72 billion), GM ($54.74 billion) and Toyota ($263 billion) combined. If Tesla achieves 50% growth in vehicle production in 2022 (a claim Elon Musk made in the 1Q 2022 earnings call), then the annual revenue in 2022 could be above $80 billion. Net income could top $13 billion or more, unless supply chain bottlenecks and commodity prices continue to bite into profitability. That would put Tesla’s income above GM ($9.84 billion in 2021), but beneath Ford ($17.94 billion in 2021).
There’s no doubt that electric vehicles are the future of the auto industry. According to the Alliance for Automotive Innovation, EV sales increased 11% in the 4th quarter of 2021 (compared to Q3), while sales of gas-powered vehicles contracted by -1.3% over the same period. EVs currently make up only 4.4% of the total U.S. fleet, so there’s plenty of room to grow. However, with a price-earnings ratio of 89 (while the average P/E is around 17), Tesla is still expensive – even with the pullback. When Musk’s profit taking instincts kicked in back in November of 2021, the P/E was an eyepopping 415.
Austin and Germany Gigafactories are producing now. However, with the COVID shutdowns in Shanghai, Tesla is projecting that 2Q 2022 deliverables will only be on par with 1Q or “slightly lower.” That will still represent year-over-year growth of more than 50%, assuming Tesla’s guidance becomes reality.
Auto Stock Report Card
How are the lockdown in China, supply chain disruptions and high commodity prices affecting the Chinese EV makes? XPeng and Li Auto led the pack with 1Q 2022 revenue growth of 153% and 168% year over year, respectively. Nio is still growing, but has seen revenue growth trim back to 49%, with about 28.5% growth expected for the 1st quarter of 2022 (based upon deliveries). Nio will report 1Q 2022 results on June 9, 2022 before the markets open.
Despite some of the best revenue growth in the industry, the Chinese EV makers have seen their share prices plunge. Most are trading at a 3-year low not seen since the bottom of the Pandemic Recession. Since these newer companies are still cash-negative, a more helpful valuation tool is a price-to-sales ratio. Here again, Tesla shows up as quite elevated, with a 13 P/S ratio, compared to an average 4-6 in Nio, XPeng and Li Auto.
Supply Chain Disruption, Commodity Prices and Inflation
Supply chain, COVID and commodity prices are affecting the entire auto industry. Xpeng’s 1Q 2022 deliveries were 17% lower than 4Q 2021. 2Q 2022 deliveries could be lower than 1Q if May and June are not significantly stronger than April’s deliveries of 9002 vehicles. If Xpeng’s 2Q deliveries are in the range of 27,006, that is still year-over-year growth of 55.22% -- impressive, but much slower than 1Q’s 153% growth.
Tesla is in a slightly better position to stay strong despite the COVID shutdowns in China, as it has factories in the U.S. and Germany, too. The company certainly is enjoying popularity. Tesla’s autos are all on backlog in the U.S., with the Model Y not delivering until 2023 (source: Electrek). However, high commodity prices could impact Tesla’s profitability. If Bitcoin remains where it is ($29,000 range) through the end of June, Tesla will have to write down its investment in crypto.
There are many signs (and many analyst warnings) that a recession could hit the U.S. over the next year, not the least of which was that the 1st quarter of 2022 contracted -1.5%. (2 consecutive quarterly contractions are considered a recession.) New car sales slump in recessions. While no one has a crystal ball, it’s important to remember that General Motors and Chrysler both declared bankruptcy in 2009 – after years of losses in sales and profitability during the Great Recession. In the 1st quarter of 2022, the consumer appetite for vehicles was strong, despite the contraction.
The legacy automakers are far more vulnerable in recessions due to the amount of debt and Other Post-Employment Benefits (OPEBs) that ae carried on their balance sheets. Ford Motor Company is a junk bond, and is the only company on the Auto Stock Report Card that saw revenue decrease year-over-year in the 1st quarter (by -4.84%). If you’d like a copy of the Auto Stock Report Card, just email info@NataliePace.com with Auto Stock Report Card in the subject line.
High gas prices and environmental concerns are fueling a shift from gas-powered to electric vehicles. Ford and GM were already at a disadvantage from debt and OPEBs before the exodus to EV began. While Ford and GM are transitioning, they still ring up 95% of their sales from gasoline-powered products. Companies like Tesla and the Chinese EV makers are seeing stellar sales growth – even with the headwinds caused by COVID, supply chain bottlenecks, high commodity prices and inflation.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.