Tesla Sees Challenges as Musk Focuses on Twitter

Tesla’s (TSLA) stock has plummeted 45% this year, much worse than the 27% drop for the Nasdaq 100 Stock Index ($IUXX) (QQQ).  Tesla has sold off even though its earnings estimates are higher than a year ago. Tesla has underperformed on concern that the recent acquisition of Twitter by Tesla CEO Musk has diverted his attention away from Tesla.

Tesla CEO Musk has been deeply involved in overhauling Twitter to the point that he said this week that he had too much on his plate and was working “morning to night, seven days a week.”  Zack’s Investment Management said, “the concern is that there are only so many hours in the day for Musk to manage all of these projects and that we’re starting to see a deterioration in Tesla’s stock price because of that.”

Besides Tesla and Twitter, Musk has other ventures he attends to, including Space Exploration Technologies Corp, or SpaceX, the tunnel construction company Boring Co, and neurotechnology company Neuralink Corp.  Investors are also concerned about other risks to Tesla stock, including Musk having software engineers from Tesla review Twitter code, taking their time away from focusing on Tesla projects.

Zack’s Investment Management said it is also concerned that Musk is not focusing enough on Tesla’s future projects, saying, “if Musk continues to use staff from other companies like Tesla, or SpaceX, to keep helping Twitter, then obviously there’s going to be degradation of productivity to those other companies.  In addition, the rising costs of overhauling Twitter may prompt Musk to sell more shares of Tesla stock, given that he sold nearly $4 billion of Tesla stock last week despite assurances that he was done selling.

Even with the hurdles that Musk must overcome to revamp Twitter, many still believe that the outlook for Tesla remains positive.  As a global leader in electric vehicles (EVs), Tesla is set to benefit from the auto industry’s shift to battery-powered vehicles from gas-fueled vehicles.  Also, the Biden administration’s Inflation Reduction Act is expected to give a boost to vehicle sales in the U.S. 

The average Tesla price target by analysts suggests a 47% return over the next 12 months, although analyst price targets are notoriously fickle.  The Future Fund says, “the Twitter noise will die out by month end as Musk gets a handle on Twitter’s issues.”  Then, Tesla’s stock price will be driven by the rising adoption of EVs and the company’s Cybertruck pickup launch, among other factors.

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