Tesla No Longer World's Most Valuable Automaker
Tesla has been on a wild Wall St. ride this month.
For a short time this year, tiny Tesla was worth more than giant "legacy" automakers like General Motors, at least in the eyes of Wall St. That appears to have changed.
That's thanks to three pieces of negative news that bubbled forth during the first week of July.
It Started with a Tweet
The first piece of news came in the form of a tweet from Tesla CEO Elon Musk, who admitted via Twitter that his company would fall short of production goals for the upcoming Model 3 as well as overall 2017 production projections.
Following that, Volvo announced a plan to move to only electric or gas-electric hybrid engines for its future products. That created a stir, as no other major automaker (save Tesla itself, which is much younger and smaller than even the relatively small Volvo brand) has announced plans to do so.
Finally, Tesla's Model S earned an acceptable rating in the Insurance Institute for Highway Safety's small overlap front test, but it fell short of earning the Top Safety Pick + that the group awarded to competitors such as the Lincoln Continental and Toyota Avalon. The IIHS said the Model S's seatbelt allowed crash-test dummies to slide too far forward.
Despite Tesla still scoring an "acceptable" rating and doing well in other tests, Wall St. was unhappy with the results and sent the stock sliding.
As of July 6, Tesla shares had dropped $53. They fell six percent that day and 15 percent in the week leading up to it.
That's the worst weekly percentage drop for Tesla since early last year, and it cost the company $8.7 billion dollars in market capitalization, at least from Monday, July 3 until Thursday, July 6. And we haven't even covered accusations from female employees that the company fosters an environment of sexual harassment towards them – that news broke around the same time but it's unclear what effect it had on stock prices.
This wild ride speaks to the intense spotlight that Tesla is under. Missing production targets isn't unusual in the automotive industry, for example, especially for a small, relatively young automaker like Tesla that has also already grappled with quality concerns. Building cars on a mass scale is a complex challenge, and despite its previous experience with the Model S and Model X, building the Model 3 represents a new challenge for the company – the Model 3 is the company's first "affordable" car for the masses, and it expects to sell it in higher numbers. Ramping up production to that level isn't easy.
Wall St. doesn't see it that way, however, in part because of hype that Tesla itself has created, spurred by Musk. Musk is a star in a way many CEOs aren't, and he has big ideas. Tesla's success so far has only spurred confidence in Musk – breaking into the auto industry isn't easy.
So when Tesla faces challenges that are fairly normal to the industry and stumbles, it gets punished by those hoping that Musk and his small car company are going to revolutionize the industry. The truth is that Tesla has come up with some interesting technology and has taken a unique approach to some parts of the sales and service side of the industry, but it still faces the same challenges as other automakers, and like the others, it will occasionally not succeed.