Meta has a huge generational problem. Their flagship products are Facebook and Instagram. Facebook is not used by gen Z at all. The writing is on the wall that FB will be a ghost town once millennials turn into ghosts. Instagram is maybe 10 years behind. So Meta is chasing TikTok without realizing that gen Z isn’t using that either and also without realizing what TikTok actually is. Also Meta is bizarrely chasing virtual reality stuff and failing so far to provide any kind of value prop.
Belief in the direction of the price can come from examining the financial fundamentals of a company and the perceived value that it may increasingly generate ("fundamental analysis'). Or it can be speculative, where people believe other people will buy (or sell) more based on observed buying/selling activity ("technical analysis").
With Tesla, many investors were using their own version of technical analysis that far surpassed the valuation that a reasonable fundamental analysis would have derived and even derive today. There was and is a mania, much like there has been and there is for many forms of cryptocurrency.
The recently declining price is likely due to a collective perception that Tesla has been overpriced and, due to recent factors, that the fundamentals that justify the pricing for a share will diverge even further from its recent pricing. From a fundamental level, Tesla was unlikely to justify its recent pricing. An irony is that the earlier mania was so intense even today, after such a pronounced plunge from the start of the year, it likely remains seriously overvalued.
Second, TikTok has an absolutely amazing recommendations algorithm. This is the core of the product: an algorithm that has a great mix of showing you things that have to do with your interests while also showing you things that are just slightly outside of them to expand your horizons. It feels cohesive and custom tailored. FB shorts are awful. They show you cheesy bullshit videos that have nothing to do with you or each other. Until you watch one and then they assume that’s all you ever want.
So what is Gen Z using?
...Gen Z doesn't have to be "using" anything particular. Just because, for some years, "everybody had to be on Facebook" doesn't mean that the decline of that means something will necessarily replace it.
There was no "previous Facebook", and there doesn't have to be a "next Facebook".
MySpace was founded in 2003, Facebook in 2004. Yes, there was a brief period where MySpace was more "the place to be" than Facebook, but that was essentially a flash in the pan, given that Facebook has held that crown now for so many people for over a decade.
To expand a bit on what I said in the GP post:
In 2002-4, the early social networks all started to come online. Facebook was the only one of those to survive with any relevance. It has now existed for 18 years, and its relevance among young people is definitely on the wane.
There was nothing like it before that time: Usenet, forums, AOL chatrooms, and BBSes didn't give anywhere near the same kind of connection or experience that Facebook circa 2008 did.
There is no inherent reason that there must be something like it afterward. TikTok isn't really comparable to Facebook; it doesn't lend itself to the same kind of communication or connection. Twitter (which may now be dying) and its decentralized imitator Mastodon may come closest, but they don't encourage the kind of long-form posts that Facebook does, nor do they have the same ability to build out your IRL social network in the digital space that was the hallmark of early Facebook.
There may, at some point, be some new company, service, or protocol that can to some meaningful extent replicate the experience of Facebook in its heyday; or that can, at least, command the attention and interest of as many people...but there's no guarantee that that will be the case, and everyone looking for X, Y, or Z to be "the next Facebook" are begging the question by assuming that there will be.
I've close friends/relatives that are never buying a Tesla because of him and I know of people trying to sell their Teslas too. I'm sure that drives the price down too.
The narrative over the last few years is that tech stock will grow to the sky. We were in an ebullient bubble phase. Psychology is a factor in market pricing. The narrative is shifting. Interest rates are going up, the economy is tightening, people may lose their jobs and investors are realising that companies in high valuations leave precious hostages to fortunes. People are beginning to realise that TSLA doesn't have a monopoly on the production of electric vehicles. Above-average profits bring in competitors, which of course reduces those supernormal profits due to market forces.
People go from "this baby's going to the moon" to "I don't want to be the last guy holding the bag."
They'll be plenty of experienced investors on HN who know exactly how all this goes down. But they'll also be a surprising percentage of HN readers who won't. Despite being highly intelligent, they'll fall for narratives (perhaps even more so than their lesser intelligent counterparts), and rationalise why absurd valuations are justified.
Falls tend not to be kind, either. It can take years to build up a head of steam, only for it to collapse in a few months. Crypto, anyone?
Rising prices tend to feed on themselves. The higher and longer a stock goes up, the more it seems like a "sure thing". But there's no such thing as a sure thing. The higher it goes, the more detached it becomes from reality. Reality wins in the end, though.
Tesla still has an MCAP of around 400bn - for comparison, Volkswagen has around 70bn.
Tesla is one of those things that cemented it for me. Tesla's market valuation - at least in my eyes - was insane. People would tell me "it's about where Tesla COULD go", but Tesla would literally have to have sold something like as many cars as the five biggest manufacturers combined, and they have very little actual moat. Why was Tesla's stock so high? Because it was. Why is it lower now? Because it is. If you can figure out the real reason why, you can probably predict where it's going next, in which case, congratulations on your future wealth.
Just to give some nuance to the high evaluation of Tesla - Tesla does produce around 10 times as many _electric_ cars as, what I think are their two biggest rivals globally, Hyundai Motor Group (KIA+Hyundai) and Volkswagen Group does. Tesla has also consistently been outpacing both in how much their production capacity of electric vehicles grows year-over-year.
I think the evaluation dip of Tesla is very much related to:
1. Current state of general economy.
2. Investors realizing how absolutely bonkers its CEO is and his total lack of empathy for others than himself and his own ego.
3. Elon selling a lot of stock to finance his Twitter shitstorm.
We don’t have the same charging infra as other places so electric cars aren’t common at all; we just got our first charger at our first grocery store. But as that came, some people thought they’d want an electric car, and they didn’t turn to Tesla. If this trend continues and is representative of what’s happening elsewhere, that’s bad for Tesla.
This seems mostly like anecdotal.
Note that all three big players (Hyundai, VW and Tesla) sells all cars they are currently producing, and have people in line for future cars (disclaimer: We ordered an Ioniq 5 2023 as soon as orders opened up early 2022, haven't gotten it yet). The difference is Telsa sells 10x as many cars that they produce at a lower cost (same price, smaller battery). As an example, while traditionally being cheaper - nowadays an Ioniq 5 is about as expensive as a Model Y (at least in Sweden where I live) due to Hyundai not being able to keep up with the demand. They simply can't produce the same number of cars Telsa can.
Telsa are able to sell more cars at a higher price point. They can do so due to their bigger production, superior software, charging network and efficiency of the drivetrain. Given that demand would decrease for EVs in general, Telsa has a way bigger margin to decrease prices than VW or Hyundai. Their product is just better - full stop. This comes from someone who thinks Elon is an absolute idiot, has ordered a non-Tesla EV and absolutely hates the driver experience in the Model Y/3 (no buttons/switches, no instruments in front).
I think neglecting what Tesla has accomplished so far and that the position they are in reflects on their market value is just lack of knowledge into how many EVs Tesla produces compared to anyone else.
I don’t see how Tesla’s EV market share justified Tesla’s market cap. I just went back and looked and Tesla’s market cap was higher than every single auto manufacturer combined. Could anyone really justify that based on expectations of future performance? Even now it’s about the same as the top four or five combined. I struggle to see how that’s not a crazy overvaluation. But I am not going to put any money on it. Even if I’m right, the market can stay irrational longer than I can stay solvent.
Remember that no new ICE cars will be allowed to be sold within the European Union starting 2035.
I agree they aren't selling a lot of EVs...but I also think a lot of that is just that EV demand is just not that high outside of certain bubbles, and certainly not at the current price point. Teslas, even Model 3s, are priced as luxury cars (I can't afford one myself), and have cachet among a certain set. Most EVs are worse off, in that they don't have the Tesla glamour. But there's no reason I can imagine that situation is permanent.
When/if demand changes due to regulation or economics or evolving tech, it's going to be a very different environment. This is particularly true as batteries become commodities. I don't want to handwave away the engineering, but electric motors are not revolutionary technology.
Even if we assume Tesla comes out on top, it seems crazy to believe Tesla is going to come out on top so hard that it sells 95% of all new vehicles globally.
NB: I think the auto industry future is very bleak for other reasons: we could make a great, reliable electric vehicle, but instead we're packing them full of shoddy electronics and software that will have unpredictable and difficult-to-troubleshoot failure modes (as is already the trend in ICE cars, where electronics are a bigger and bigger problem.) They will end up having to be serviced by manufacturers only and we'll probably all be cursed with subscription plans. Life will me much harder for those less well off.
Is there some reason to believe auto makers will be totally unable to shift to EV?
Note that I'm not saying that Teslas evaluation isn't too high in its current state - what I'm saying is that it's not _unreasonable_ that it is a lot higher than any legacy carmaker. And higher than a few of them together isn't unreasonable either since they make 5x the amount of EVs as Hyundai and VW makes together. This is while scaling production at a faster pace than those two as well - so the gap is widening rather than the other way around.
Try to avoid hype stocks. It's easy to get burned. Recommended reading is "Intelligent Investor" by Ben Graham. Warren Buffett calls it the best book on investing ever written, so you can't go far wrong. It's importance is in emphasising valuation rather than narratives.
That's what made businesses with tenous present-day profits but notionally profitable futures fundable. Eg: TSLA, Netflix. Even internal projects like Disney+ operated on this same math.
VW on the other hand has 50+ years of actual sales. They can't suddenly claim to sell 20% more cars; no one will buy that claim. Or for eg. that ESPN satellite subs will increase by 5M.
With interest rates at 6%, all those future earnings discounted to present day don't look so good anymore. Present day money has lower risk alternatives to earn return. Hence the selloff.
As an aside low interest rates encouraged companies to invest in high risk, capital projects in lieu of hiring low/medium skilled labor. Eg - self driving cars, or burger flipping robots. That's had some interesting consequences for certainly US society in terms of who labor votes for.
Tesla
1) $TSLA was overvalued based on unrealistic assumptions about competitors and Tesla's ability to stay on top.
2) $TSLA was sort of a meme-stock that has just run out of comedy runway.
3) $TSLA is now a meme-stock and ordinary investors don't generally want to hold meme-stocks.
4) Investors are genuinely concerned about the behavior of the Twitter CEO, who as we all know is the Tesla CEO. Is it really surprising that making bad decisions in one arena will affect outcomes in another?
I have no idea which if any of these are true, but they all seem somewhat plausible. Really, each of these plus more are probably contributory factors for different investors.
Meta
1) Social media as a profitable enterprise has not especially proven durable over the long term. Plenty of entrenched incumbents in all sorts of industries fail after decades or centuries even. Meta is running out of good ideas. (Again, just my guess.)
It still has some value - Groups and Marketplace are pretty popular, and a decent number of businesses use it as their website. But it doesn't really have the "all my friends use Facebook" moat anymore. That's moved to Whatsapp (at least in the UK).
(And yeah Meta own's Whatsapp too, but Whatsapp is not really monetised at all.)
WhatsApp monetization comes through the business offerings. Increasingly, you can use that to interact with companies, small and large
Yeah I know that's their plan (basically trying to copy WeChat) but does anyone actually use it? I haven't heard of a single business in the UK using it yet.
Is he even doing any work as the Tesla CEO? He seems to be busy tweeting 24/7
He made a $44B deal in Twitter, and he can't accept the repricing in the market that makes it worth significantly less.
He owns 13% of Tesla, which is worth $50B. For him these two companies look like equal importance, while for investors Tesla is the important company.
Twitter will eventually get to this place too. The risk to both Tesla a d SpaceX is where Musk as as much as lead engineer as CEO. Distracting him from that side is where there is likely to be an impact.
With the rest of the auto industry finally getting into EVs, I'm sure there are strategic and big picture elements that are going unnoticed by the absentee CEO.
Like, if my day-to-day duties are so light that I can take a similar full time job at 2 other companies, and everyone gets on fine while I’m gone doing those other jobs, maybe that’s an indication I’m not really doing anything important in the first place.
at the end of the day, everyone has a boss and Elon's is the general public. his stock is tanking. while you can say it's not the same as being fired as a regular employee (and it's not), he doesn't 'get to do that'
As interest rates rise, it becomes appealing to cash out of speculative investments and re-invest where returns are reliable and predictable.
Even a fractional reserve exchange that’s “doing ok” (whatever that means when you play with other people’s money) is still gonna buckle under the weight of a run.
If a HN contributor actually could explain market movements, i.e. really grokked the causal network underlying equity prices, then they would make millions exploiting the ignorance of everyone else, and probably not sharing their secrets with the rest of the world.
Put differently, if you say "X causes Y, but only in this one instance we're discussing now and not in the future" then does X really cause Y, or was it a coincidence that they happened at the same time this once? The razor leads us to conclude that what's indistinguishable from coincidence is coincidence.
----
Edit: Oh, I see what you're saying! Something like "X causes Y but knowledge about X is only available after Y is already known"?
That is possible, and it's even testable by blinding the person to Y while revealing X. Is it useful knowledge? Maybe!
Tesla is massively overpriced for a stock that's not growing.
The stock market used to be saying that Tesla would continue growing at current rates for about 5 years.
The stock market is now saying that Tesla will grow at current rates for less than 2 years.
Obviously it can't continue growing at current rates indefinitely. So when will it stop? If you think it'll keep growing for more than 2 years, it's a buy. If you think it'll stop growing sooner, it's a sell.
Tesla has started lowering prices on its cars. People think that's a sign that their growth is slowing.
[1] https://www.investopedia.com/terms/t/timevalueofmoney.asp
It's no longer being priced as a miracle-maker, FSD, semis, scale, superchargers, powerwall. The government isn't buying it[2], Tesla isn't outfitting PG&E/ERCOT flaming infrastructure with batteries to prevent people from freezing to death. They're not really F+HON+XOM+Xylinx+X-Parc, and loud activists want them to just be F.
Now the real question: does "making a car" really still look like an appealing growth tactic for Tim Apple to deliver shareholder return?[3]
Knowing all this makes me want to gouge my eyes out, unfortunately.
They'll obviously pull through with their lowish debts, I think Musk is more aware of the gems in their mine than he lets on.
[0] https://news.ycombinator.com/item?id=33211504
[1] https://traffic.megaphone.fm/WSJ9258707464.mp3?updated=16416...
[2] https://oshkoshdefense.com/usps-selects-oshkosh-defense-for-...
[3] https://www.cnbc.com/2021/04/05/tim-cook-interview-apples-ca...
Tesla: general economic environment, stiffer competition and too many things piling up that will come “next year”, which will dry up one of their historical advantages (i.e. get paid now, deliver never). Probably some sell pressures from Musk cashing out for twitter and from a certain demographics of investors hit particularly this past year. On top of all that, Musk has been in the media too much and his true self started showing, alienating mostly potential customers and not making much inroads with the more conservative folks.
Meta: that just seems the nature of the space. Products are in and out within a few years, retaining mostly a certain demographic which grew up with them. They were able to stay relevant via good acquisitions, but were not able to do so for a couple of cycles now due to competition not interested in selling (Snapchat, TikTok). To accelerate the decline: general economic environment, privacy restrictions, and an expensive pivot to VR where the market seems way too small to support such valuations.
https://en.wikipedia.org/wiki/Beta_(finance)
Those stocks may have their own problems but they are all taking a hit from rising interest rates and other factors that have people running away from stocks as a whole.
When the FED is changing the interest rates up, that means the discount rates of market players go down. A safer alternative investment has become available. So economic production in the further future is worth less today than it was last year.
For which companies does that really matter? For companies where a large part of their value came from economic productivity that they were expected to have further in the future, and have relatively little of their value coming from present economic production. Tesla and Meta are two such companies, but it is a tendency in tech to believe companies will grow.
https://money.cnn.com/quote/forecast/forecast.html?symb=TSLA
I‘m not an expert, but probably down because Mr Musk has been selling quite a lot of stock this year and also again this month, apparently because of Twitter.
https://www.cnbc.com/2022/12/15/elon-musk-sells-another-huge...
That has now changed _dramatically_. Very few people now think of Musk as being a magical genius.
In the last 2 years, Meta touched twice its end-of-2019 price; Tesla peaked at over 13 times its end-of-2019 price, and is still 5 times higher now! That seems like a far more striking and unlikely phenomenon than the recent slide.
Keep in mind most investors are agents. They want to be able to tell their customers "look you're paying for a service I'm providing you". When rates are zero, customers are gonna think "hmm that Bob guy is giving me nothing, plus I'm paying him". So what does Bob do? Take some risk. A tiny amount of risk is actually enough that the customer is not net paying Bob, because fees aren't that high in relation to market moves. What does Bob do? Sticks his investors' money in stuff that has a good story: growth stocks. All the Bobs do this, and TSLA and META go up.
Now the story behind such firms is often the same under the hood: they're making some revenues now, but next year it will be more and the year after it will be a lot more, and maybe profits will rocket and it will be great if you got in early.
Which is fine when interest rates are zero, you're basically just backing a maybe-success that others are also backing. Those companies are often also earning money from other growth firms, so it feeds itself.
But when rates go to say 5%? Then in 5 years time, you could have just sat on your butt, not cared at all about what some CEO is writing on Twitter, and just collect a compounded dozens of percent. And it starts to bother you that the story could unwind the other way: those firms will lose money because their customers are in the same game, and the Bob guy certainly does not want to lose money, so he's going to be wise and sells a bit.
With Tesla, more people want to sell than buy for a multitude of reasons: cashing out on the 2020-2021 rally (20x), seeing it as over valued in 2022 or just seeing Elon not paying enough attention to Tesla.
With Meta, people are selling cause we’re in a recession and Ad spending goes down hard in recessions. Additionally, you have Mark burning money on the Metaverse which no one thinks is a good idea (he’s not selling anyone his vision on the metaverse but since he controls the company with more than 50% of the voting shares, he can do what ever he wants).
Long story short, investors have lost confidence in these stocks.
Him stepping down from Twitter is probably to save Tesla's stock but like you said, the damage to the brand may be long-lasting. At the same time, EVs are becoming more mainstream in general as other brands catch up.
He’s already putting ridiculous constraints on the position, that the new CEO must invest their life savings in Twitter to get the job. Hard to tell if he’s serious about that or not because it’s very far from the craziest thing he’s said lately.
I wonder if there’s a strategy there
While they might feel happy about elon and kanye sticking it to the other side, they are not in market for an EV.
It wasn’t the uneducated who were sending fake Certificates of the Vote to the VP. They were practicing lawyers and elected representatives of the government. The wife of a SCOTUS Justice is one of the biggest proponents of right wing conspiracy theories. It doesn’t get more elite than that.
In general this combination of beliefs seems like too small of a segment to build a company with a market cap like Tesla’s around.
1 - smaller number of registrations in China than expected. Is it because covid is ravaging and there are less people buying cars? BYD not seeing this effect, so indicates softer demand for Tesla in China
2 - increased output finally matching the demand? either because China has more internal competition or because the Fed increasing rates makes cars less affordable in the US
3 - hodlers of TSLA (overlap with hodlers of crypto) and option traders are getting margin calls with the decreasing stock price (their collateral for the margin) and are forced to sell at the current price
4 - Elon Musk sold TSLA stock to have money to shore up is Twitter acquisition ("found" that Twitter had 3B yearly negative cash flow)
5 - higher interest rates in US cause Price/Earnings compression, no need to risk on the stock market when treasuries offer a nice, guaranteed payout
6 - US economy is in recession and with a high interest rate; market participants will short stocks, specially the ones with higher P/E; its a self-powering process until it ends
7 - Musk political views on twitter (or lack of independence) tarnished the halo of the Tesla brand and may reduce the overall addressable market of the brand, specially in the US. Tesla was always a Mass Stream Media magnet but now common folks and journalists are exposed to more "radical" views from Musk, eroding trust.
8 - Tesla price reductions and free charging miles in push to reach end-of-quarter numbers, because customers could be delaying purchases until next year to benefit from Inflation Reduction Act tax credits. This will lower profit margin on these sales and, therefore, total profit for the quarter (although Tesla is producing more cars, with scale effects on the margin and the supply chain prices are starting to decrease)
9 - too much noise regarding Musk attention to Twitter. Is he still taking enough time to drive the Tesla business ?
I had to sell the most my TSLA stock to prevent margin calls (greed selling puts at All Time Highs and thought the rising Tesla business would outdo the Fed tightening - was totally wrong).
Would not have sold any if not for this. Looking forward to shove some extra money again back into TSLA, as it becomes available.
Putting that very mildly...
More like nosebleed P/E
Steve Jobs worked on personal computers before they existed. He was recognized as a visionary with his first iconic device, the Apple II, and he make a huge impact on computing with the Mackintosh which came out in 1984. The list of ground-breaking devices which he worked on is longer than anyone else's. Almost everything he did between the days of solder-yourself computers and the point when everyone had a camera/internet/voice/video/touchscreen-enabled device in their pocket was pushing towards making personal computing and networked communication easier, more user-friendly, better designed, more reliable, etc.
Musk is a Tesla founder only retroactively.