Last December, I wrote Why Tesla’s Market Share Is Set To Plunge In 2023. My logic was straightforward. After buying Twitter, Elon Musk began to alienate the very people most likely to buy a Tesla
TSLA
I did indicate that Tesla had a couple of advantages working for it. One is that competitors are racing to catch up, so even consumers who might want an alternative might have trouble finding one. Further, Tesla orders have historically been backlogged, so many customers who have been patiently waiting for a Tesla would probably go ahead and finish their purchase.
But within three months, several commentors declared that my analysis hadn’t stood the test of time, or that Tesla’s market share was only going down because it couldn’t keep up with demand.
However, I dealt with those topics in the original article. I didn’t expect a plunge in market share within three months, because of Tesla’s backlog. I literally wrote “There just aren’t enough alternatives to meet demand if a substantial fraction of potential Tesla customers decide to look elsewhere.” Further, of course market share will naturally decline as competitors race to catch up.
The question I raised is whether that decline in market share will be greater because of Musk’s behavior on Twitter (now “X”). There have been plenty of published reports that the value of X has seriously declined from Musk’s purchase price. Advertisers fled in the wake of a number of controversial decisions by Musk. Is it really that hard to believe that the effect would bleed over into Tesla sales?
Cox Automotive’s Electric Vehicle Sales Report for the third quarter was released last month. The report stated that Tesla’s market share has fallen to 50%, which is the lowest on record, and down from nearly 65% in the same quarter last year.
I want to quote from the report’s press release, given that one of my detractors said that my article had “aged like fine goat milk.” Note that they used the same language I used in that article from last December:
“However, Tesla’s share of the EV segment continues to plunge, hitting 50% in Q3, the lowest level on record and down from 62% in Q1.”
I think my article aged just fine, but this is going to play out over time. Yes, Tesla’s sales actually rose year-over-year, which is entirely expected due to the rapid growth in the EV market. And yes, this decline in market share was naturally going to happen as competitors enter the market.
But it’s hard to argue that Musk isn’t making it worse. As I noted a year ago, I was aware of plenty of accounts of people cancelling orders on the basis of Musk’s Twitter comments and decisions. There have been articles noting the same (for example).
Although it is impossible to gauge just how much of the decline in market share is related to opposition to Musk, I did see a recent comment on X that reiterated my view about damage to the brand. Ross Gerber, a long-time Tesla shareholder and investment advisor, wrote:
Gerber, who apparently later deleted his comment, previously criticized Musk’s decision to buy Twitter. Nevertheless, Gerber said at the time “I’m never betting against this guy.” It sounds like that may no longer be the case.
Tesla shares have taken investors on a wild ride over the past year. In 2022, the high-flying stock plunged nearly 70%, enough to make even the steeliest shareholder queasy. But this year, Tesla has come screeching back, with shares rising 116% year-to-date.
Yet even after this whiplash recovery, the stock remains about 34% below where it stood at the start of 2022. Clearly, Tesla has hit some turbulence thanks to Elon Musk’s chaotic Twitter takeover. The consequences of the decision to buy Twitter have inflicted damage that can’t be fixed overnight.
The EV revolution is still in its early stages, and Tesla isn’t about to go away. But Musk’s Twitter distraction will continue to pose serious challenges in the years ahead. As Tesla tries to patch itself up, investors may want to buckle up. The road back to all-time highs may be a long and winding one.
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