Tesla’s Aura Dims as Its Plunging Stock Highlights the Risks It Faces

The premise that made Musk the richest person in the world is being reexamined by investors.

If investors believed that the electric car company was on a path to dominate the auto industry, the $1 trillion valuation made sense.

More than $400 billion in stock market value has been wiped out by the steep decline in the shares ofTesla since April 4. The company faces risks that have been called attention by the tumble. Increasing competition, a lack of new products, lawsuits accusing the company of racial discrimination, and production problems at the factory used to supply Asia and Europe are some of the things that are included.

Mr. Musk has not helped the stock price by making his bid to buy Twitter into a financial soap opera. His antics have reinforced the perception that there is no independent board of directors that could stop him from doing things that could damage the company.

Andrew Poreda, a senior analyst who specializes in socially responsible investing, said that the company has a lot of red flags.

Even long-time optimists are having doubts. One of the most steadfast believers in the company has been Daniel Ives. The target price was lowered by the firm to $1,000 from $1,400. In China, there have been problems with the supply of crucial parts and materials and demand for cars.

There is a new reality forTesla in China, and the market is rethinking the risks.

One of the rationales for making the world's most valuable car company is being undermined by production problems in China. The world's largest car market is being helped by a hit with Chinese buyers ofTesla vehicles. In the first quarter of 2022, the market share in China was 2.5 percent, closing in on luxury carmakers Mercedes-Benz, BMW and Audi.

Michael Dunne is the chief executive of ZoZoGo, which advises companies on the electric car market.

Mr. Dunne said that Chinese consumers are worried about the future.

War in Ukraine, rising interest rates, the threat of recession, supply chain chaos and surging inflation are some of the forces that are roiling stock markets around the world. The company that owns Google has seen its shares fall more than other Silicon Valley giants.

In the United States, 75% of the electric cars sold last year were byTesla. The company is several years ahead of its competitors. The Model 3 sedan and Model Y sport utility vehicle accounted for 95 percent of the company's sales. Its next consumer vehicle, a pickup truck, has been delayed many times and is not expected until next year at the earliest.

New models fuel sales in the car industry. Competition from the likes of Ford and Volkswagen is growing, giving drivers more choices.

Jesse Toprak, an auto industry veteran who is chief analyst at Autonomy, a company that offers electric cars by subscription, said that the market share ofTesla will fall below 40 percent by the end of the year.

Mr. Toprak said that they would have a smaller share of a larger pot.

13 percent of new car sales in Europe are electric vehicles. In the United States, sales of battery-powered cars are just beginning to take off. In the first three months of the year, Volkswagen sold 56,000 battery-powered cars in Western Europe, just behind the 58,000 sold byTesla.

As a new factory near Berlin ramps up production, the ability to serve the European market will improve. fanatically loyal buyers who regard Mr. Musk as a visionary and are willing to wait months or years for the company's cars have helped the company.

The next generation of buyers will be less tolerant of electric cars because of high gasoline prices.

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The image of the company is under pressure in ways that could hurt it among customers who are politically liberal. The California Department of Fair Employment and Housing is accusing the company of allowing racial discrimination and harassment to flourish at its factory. The lawsuit is being challenged byTesla.

Last month, the S&P 500 ESG Index ejectedTesla, a company that met certain environmental, social and governance standards. S&P said it was disturbed by claims of poor working conditions at the company's factory.

The movement to apply environmental, social and governance standards to corporations has been weaponized by Mr. Musk.

Mr. Musk said that he would now vote for Republicans because he thought the Democratic Party had become a party of division and hate. Some car buyers will be offended by politically charged statements.

The more political he becomes, the more that might start to influence buyers.

Mr. Musk and his company did not respond to questions.

Another risk is management turnover. If he takes over the social media platform, Mr. Musk has warned employees that work ethic expectations would be extreme.

It's obvious that there is a lot of turnover atTesla. The start-up scene in the San Francisco Bay Area has a lot of former senior managers. One example is Gene Berdichevsky, the chief executive of Sila Nanotechnologies, who was once a battery developer forTesla. Sila will supply Mercedes-Benz with advanced batteries.

Peter Rawlinson, a former top engineer at Musk's company, founded the company that makes the only electric model to beat outTesla in the EPA's tests of how far an electric car can go on a full charge. The headquarters of Lucid is in Newark, Calif., a short drive from the factory of the electric car company.

Mr. Musk has helped promote emission-free vehicles by seeding the industry with talent. Critics think that there is a risk that the company will never develop a stable group of experienced managers who can run it.

The tight labor market makes it difficult for employers to treat their workers well.

Mr. Musk has been spending a lot of time on the acquisition of Twitter, though he seems to be having second thoughts about it. Some investors are wondering why the boss is spending so much time on social media when the world is burning.

There is a feeling that the pilot on the plane is watching a show while he is in the middle of a storm.