Elon Musk Sells Additional Tesla Shares Amid a Crisis of Faith Around His Brand Leadership

Rohail Saleem
Tesla Elon Musk

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

Given the sizable underperformance of Tesla shares to the benchmark Nasdaq 100 index over the past few days, market chatter congregated around Elon Musk's possible liquidation spree as the most likely culprit for the EV giant's recent share price weakness. That prognostication has now panned out, as per the latest filings of the CEO of Tesla with the SEC.

Elon Musk has sold 21.995 million Tesla shares over the past few days, netting $3.58 billion in the process, as per a Form 4 filed with the SEC.

Recently, a consortium of banks that had provided Elon Musk with $13 billion in debt financing for his Twitter takeover gambit floated the idea of replacing $3 billion of unsecured debt, which carries an interest rate of 11.75 percent, with a margin loan of similar magnitude but bearing a lower interest rate. This change will offer crucial cost savings to Twitter, which now faces annual interest costs of around $1.2 billion. Nonetheless, a margin loan does carry significant risks as Musk will be required to post additional collateral by selling Tesla shares should the EV giant's stock price breach the loan's margin thresholds. It is as yet unclear whether Elon Musk's latest liquidation spree is intended to bolster Twitter's liquidity and/or facilitate a transition toward the proposed margin loan.

Of course, as stated earlier, Tesla has been chronically underperforming the benchmark Nasdaq 100 index in recent days. As an illustration, the index is up a little over 1 percent in the past 5 trading days, yet Tesla shares are down nearly 10 percent over the same timeframe. While certain endogenous factors have accelerated the downward pressure on the stock recently, this weakness has persisted ever since Tesla announced its earnings for the third quarter of 2022.

Firstly, back in late October, Tesla slashed the prices of its EVs by up to 9.4 percent in China. At the time, this decision was justified as a shrewd attempt to capitalize on the soon-to-expire 12,000 Yuan subsidy that China offers on all EVs that retail for under 300,000 Yuan. The price cut allowed the Tesla Model Y Standard Range to qualify for this incentive by reducing the model's price to 288,900 Yuan.

However, that expected temporary boost in demand has not materialized so far, judging by the fact that Tesla has now started offering a discount of 10,000 Yuan for new orders. Given China's importance to Tesla's bottom-line metric, this demand weakness is turning into a sizable headwind for the stock.

Tesla continues to adhere to its guidance of growing production by 50 percent annually for the foreseeable future.

However, many analysts now contend that this guidance remains under threat, especially as the company is looking to curtail its production footprint in China heading into the year's end.

Moving ahead, Tesla continues to face heat on the safety scorecard of its bespoke Advanced Driver Assistance System (ADAS), dubbed the Autopilot. In August, California's DMV accused Tesla of misleading customers regarding the capability of its Autopilot system. The company was also sued by a customer in the same month for "deceptive marketing." Then, in October, reports emerged that the US Department of Justice, as well as the SEC, maintains ongoing investigations into Tesla's Autopilot-related claims. As per a tabulation by Taylor Ogan, CEO of Snow Bull Capital, the "miles per disengagement rate on FSD beta is actually getting *worse*, down -54% Y/Y."

It is hardly a surprise, therefore, that Tesla has now abandoned its current approach of relying solely on a vision-based Autopilot system, which consists of eight high-resolution cameras and a high-tech neural network to interpret the incoming visual cues, and is now working to re-incorporate an HD radar in its suite of sensors.

Finally, Elon Musk's approach toward free speech on Twitter is tarnishing the Tesla brand, especially when combined with his controversial and politically charged tweets. For instance, on Tuesday, Musk tweeted a message with a rabbit emoji, which was interpreted by many QAnon members as an homage to the movement's foundational icons.

In fact, as per a recent German survey, 63 percent of respondents said that Elon Musk's behavior has negatively affected their perception of Tesla.

All is not lost, however. In a fresh investment note, Morgan Stanley analyst Adam Jonas identified Tesla as the "only company able to sell EVs at ICE-like margins and have an un-presented presence in the battery supply chain."

Moreover, with China now actively reducing its zero-COVID policies and working hard to revive its sagging economy, Tesla's current bout of demand weakness is likely to be transitory.

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