Elon Musk’s Twitter distraction is just one of Tesla’s problems

Despite signs of weaker demands of the company's electric cars, Musk has been preoccupied with Twitter, a company he concedes he bought at an inflated price

Production headaches on three continents. Intensifying competition. A plunging share price. And a distracted CEO seemingly bent on alienating some of the company’s most loyal customers.

A growing list of problems at Tesla, the world’s most valuable car company, is puncturing its mystique as the segment’s technology leader, leading analysts and investors to question whether it can continue to dominate the market for electric vehicles.

At the center of investors’ concern is CEO Elon Musk, whose high-profile purchase of Twitter has overshadowed his Tesla role at a critical moment in the automaker’s relatively short history.

Tesla is straining to ramp up production at new factories in Austin, Texas, and outside Berlin. Covid-19 restrictions and dysfunctional supply chains, a problem for all carmakers, have led to intermittent shutdowns at Tesla’s factory in Shanghai.

Read | Tesla to freeze hiring, lay off employees next quarter: Report

As interest rates rise and a global recession looms, demand for Tesla vehicles appears to be slackening. Only a few months ago would-be buyers had to wait months for a new Tesla. Now the cars are available within days, which analysts see as a sign of weaker demand.

Yet Musk has been preoccupied with Twitter, a company he concedes he bought at an inflated price. Last weekend he asked users of the service in a “poll” whether he should step down as Twitter’s CEO, saying he would abide by the results. A majority of those responding said yes.

On Tuesday, Musk said he would resign as CEO of Twitter “as soon as I find someone foolish enough to take the job!” But he also said he would continue to manage the team responsible for software and servers.

Managing Tesla “is not a part-time job in these volatile and challenging times,” said Axel Schmidt, a senior managing director at Accenture who oversees the consulting firm’s automotive division.

Tesla did not respond to a request for comment.

Musk remains widely admired in the auto industry for the way he proved that battery-powered vehicles could be stylish, fun to drive and profitable. Tesla’s success forced carmaking giants like General Motors Co., Ford Motor Co. and Daimler AG to answer with their own electric models.

Musk personifies Tesla as much as Henry Ford once personified the carmaker that bears his name. As co-founder, CEO and largest shareholder, Musk is able to make decisions quickly and has built a big lead over traditional carmakers in battery technology and software.

But it is unclear who is minding the store while Musk tries to remake Twitter. Tesla publishes no management pyramid. The company’s website lists only three top executives: Musk; Zachary Kirkhorn, the chief financial officer; and Andrew Baglino, a senior vice president responsible for engineering.

Musk “has such a large personality, the impression is that the company is weak without him and that nothing happens without his approval,” said Garrett Nelson, a senior equity research analyst at CFRA, an investment research firm. (Nelson added that he disagreed with that view.)

And now that the traditional automakers are selling credible electric vehicles, Tesla no longer has the market to itself.

In the United States, electric vehicles from Ford, General Motors and Hyundai have chipped away at Tesla’s lead. Competition will intensify this year with the introduction of models like the Cadillac Lyriq and the Nissan Ariya.

In China, Tesla faces a stiff challenge from local manufacturers like BYD, which this year stopped making internal combustion models to focus solely on electric vehicles and has surpassed Tesla in the number of cars sold.

In Europe, Volkswagen and its subsidiaries like Audi already sell more electric cars than Tesla, although Tesla’s Model Y and Model 3 remain the most popular all-electric vehicle models.

In an industry that thrives on new products, Tesla has not introduced a new passenger car since the Model Y, a sport utility vehicle, in 2020. The company has promised to begin selling its long-awaited Cybertruck in 2023. But the pickup will arrive long after competing products from Ford, Rivian and General Motors.

Tesla’s share price, down 66 per cent at the end of trading Wednesday from the peak in November 2021, dramatizes how swiftly investors have lost faith in both the company and Musk. On Tuesday alone, the stock fell 8 per cent.

The decline partly reflects fear that Musk will need to sell more chunks of his stake in Tesla to pay for his Twitter takeover. To finance his purchase of the social media site in October for $44 billion, Musk has sold Tesla stock worth $23 billion, flooding the market and driving down the price. He remains the largest shareholder in Tesla.

The plummeting shares are also a sign that investors no longer believe Musk’s promises that Tesla will sell 20 million cars a year by 2030, as many as Volkswagen and Toyota together. It was that dream of global dominance that justified Tesla’s $1 trillion valuation. (These days Tesla is worth less than half that.) Musk suggested on Twitter on Tuesday that the shares had fallen because of rising interest rates and the threat of recession.

Musk has always been a mercurial boss, but his management style has vividly been on display since he bought Twitter, where he fired or laid off more than half the staff and demanded that those who remained work “hardcore” hours.

Chaos at Twitter has eroded Musk’s reputation as a genius, and his incendiary tweets risk alienating potential buyers, who skew left. He has suggested that Dr. Anthony Fauci, the nation’s chief immunologist, be prosecuted, and accused Sen. Elizabeth Warren, D-Mass., of harming America after she said he was neglecting his duty to Tesla shareholders.

“There was this kind of aura around Elon Musk that he could do no wrong,” said Taylor Ogan, a hedge fund manager and YouTube presence who has owned three Teslas. “That has finally caught up with him.”

Joya Banerjee, a lead adviser focused on gender-based violence at humanitarian organization CARE in Washington, looked at a Tesla when she was shopping for an electric vehicle last year. But even before Musk bought Twitter, she was put off by what she perceived as his ego, sexism and excessive power.

“I couldn’t see my money going to his CEO salary,” she said. Banerjee bought a Ford Mustang Mach-E instead.

Kenneth Holecko, a retired government human relations manager who lives in Virginia and owns a Tesla, said Musk’s statements about Fauci and other topics added to concerns he had about the company’s credibility on matters like safety of its autonomous driving software.

“I’m not going to go out and sell my Tesla because of what’s going on with Twitter,” Holecko said, “but I would never buy another Tesla.”

Survey data indicate that Musk’s behavior has hurt Tesla’s brand among liberals, the group most likely to buy electric cars. Tesla’s net favorability rating — the number of people who view the company positively minus those with a negative view — plummeted to 10 percentage points in November from 31 percentage points at the beginning of the year, according to Morning Consult, a research firm.

Tesla’s net favorability rating among Republicans has improved slightly, to 27 percentage points in November from 21 percentage points in August, as Musk adopted some conservative talking points, according to the firm’s research. But there are unlikely to be enough new Republican Tesla fans to compensate for disaffected Democrats, said Jordan Marlatt, an analyst at Morning Consult.

“Increasingly, Tesla is becoming a pretty partisan brand, and that could have pretty serious implications for Tesla in the future,” Marlatt said.

Although Tesla still dominates electric vehicle sales in Germany, it has been steadily giving ground to other manufacturers. Musk’s recent activities on Twitter have been headline news across the country, with Germany’s Foreign Ministry joining the European Union in condemning the deactivating of some journalists’ accounts on Twitter as dangerous to press freedom.

The sour mood surrounding Musk is beginning to rub off on German drivers, with a clear majority saying his takeover of Twitter has had a negative effect on Tesla’s image, especially among women and among people 50 or older. Nearly half of Germans who are contemplating or actively looking to buy a new car said the Twitter takeover had turned them away from considering a Tesla, according to Puls, a market research firm in Nuremberg, Germany. The firm surveyed 1,010 people in the first weeks of December.

Tesla’s new factory outside Berlin produced 3,000 Model Ys last week, the company said Monday on Twitter. But that is well below targets set by Musk.

Musk’s behavior running Twitter has been a nonissue in China, by far the largest market for electric vehicles. Like nearly all Western social media platforms, Twitter is blocked in China.

On the contrary, from the perspective of China and the Communist Party, Musk has been a model foreign executive. In October, Musk won praise from Chinese officials after suggesting that Taiwan become a special administrative zone of China as a way of ceding more control to Beijing. The comment drew a sharp rebuke from Taipei.

But there are signs that the cutthroat competition in China’s electric vehicle market may be taking a toll. In October, Tesla cut prices for its cars in China by up to 9 per cent. The company said it was doing so because production costs had come down.

Tesla’s sales in China through November were 59 per cent higher than a year earlier, according to data from the China Passenger Car Association, but that was slower than overall growth of “new energy vehicles” — a category that includes all-electric cars and plug-in hybrids. Sales of these vehicle have doubled, while BYD, the market leader, increased its sales more than threefold.

Tesla has been slower than Chinese rivals to roll out new models and features. Tesla introduced the Model 3 in China almost three years ago and the Model Y about 18 months ago. In China, that lag between new models is an eternity and an opportunity for rivals.

“The target has always been on Tesla’s back, but now it’s bigger because they seem weaker,” said Tu Le, managing director of Beijing-based consultancy Sino Auto Insights. “The competitors smell blood.”