Elon Musk is selling additional Tesla shares amid a crisis of faith about his brand leadership

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With Tesla shares significantly underperforming relative to the Nasdaq 100 benchmark over the past few days, market chatter has gathered around Elon Musk’s potential liquidation spree as the most likely reason for the EV giant’s share price weakness of late. That speculation has now exploded, according to the Tesla CEO’s most recent filings with the SEC.

Elon Musk sold 21.995 million shares of Tesla over the past few days, making $3.58 billion in the process, according to Form 4 filed with the Securities and Exchange Commission.

Recently, a consortium of banks that provided Elon Musk with $13 billion in debt financing for his Twitter takeover maneuver floated the idea of ​​replacing $3 billion of unsecured debt, which carries an interest rate of 11.75 percent, with a margin loan of the same size but bearing Lower interest rate. The change will save significant costs for Twitter, which now faces annual interest costs of about $1.2 billion. However, the margin loan carries significant risks as Musk will be required to post collateral by selling Tesla stock in the event the EV giant’s share price breaches the loan’s margin limits. It is not yet clear whether Elon Musk’s recent wave of liquidations is intended to boost Twitter’s liquidity and/or smooth the move toward the proposed margin loan.

Of course, as mentioned earlier, Tesla has chronically underperformed the Nasdaq 100 benchmark in recent days. As an illustration, the index has risen just over 1 percent in the past five trading days, yet Tesla shares are down nearly 10 percent over the same time frame. While some internal factors have accelerated downward pressure on the stock recently, that weakness has persisted since Tesla reported its Q3 2022 earnings.

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First, in late October, Tesla cut prices for its electric vehicles by as much as 9.4% in China. At the time, that decision was justified as a shrewd attempt to take advantage of the soon-to-expire 12,000 yuan subsidy that China offers on all electric vehicles retailing for less than 300,000 yuan. The price cut allowed the standard Tesla Model Y range to qualify for this incentive by lowering the model’s price to 288,900 yuan.

However, this expected temporary boost in demand has yet to materialize, given the fact that Tesla has now started offering a 10,000 yuan discount for new orders. Given China’s importance to Tesla’s earnings metric, this weak demand turns into a significant headwind for the stock.

Tesla continues to stick to its guidance of increasing production by 50 percent annually for the foreseeable future.

However, many analysts now confirm that this directive is still under threatespecially as the company looks to reduce its production footprint in China as we approach the end of the year.

Going forward, Tesla continues to take the heat on the safety scorecard of its Advanced Driver Assistance System (ADAS), dubbed Autopilot. In August, the California DMV accused Tesla of misleading customers regarding the capability of its Autopilot system. A customer also sued the company that same month for “deceptive marketing”. Then, in October, reports emerged that the US Department of Justice, as well as the Securities and Exchange Commission, were maintaining ongoing investigations into Tesla’s Autopilot allegations. According to a tabulator by Taylor Ogan, CEO of Snow Bull Capital, “The average miles per disengagement in the FSD beta is getting worse*, down 54% compared to last year.”

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It’s no surprise, then, that Tesla has now abandoned its current approach of relying solely on its vision-based autopilot system, which consists of eight high-resolution cameras and a high-tech neural network to interpret incoming visual signals, and is now working to reintegrate high-resolution radar into its sensor array. Her own.

Finally, Elon Musk’s approach to free speech on Twitter smears the Tesla brand, especially when combined with his controversial and politically charged tweets. On Tuesday, for example, Musk tweeted a message containing a rabbit emoji, which many QAnon members interpreted as a tribute to the movement’s founding icons.

In fact, according to a recent German poll, 63 percent of respondents said Elon Musk’s behavior had negatively affected their perception of Tesla.

However, all is not lost. In a new investment note, Morgan Stanley analyst Adam Jonas identifies Tesla as “the only company capable of selling electric vehicles at ICE-like profit margins and having an undisplayed presence in the battery supply chain.”

Moreover, with China now scaling back its coronavirus-free policies and working hard to revive its flagging economy, Tesla’s current bout of weak demand is likely to be fleeting.

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