Tesla Used Cars the Last Domino to Fall in Stock and Branding Rout

Tesla was the green technology, electric vehicle and ESG golden child run by the world’s living genius, then it all come back to earth swiftly. There are many facets of this fall, the last domino appears to be Tesla vehicles resale value. Used car prices in the US have gone from hyperinflation to deflation very quickly in 2022. In November’s CPI the used cars and trucks index declined 2.9% month-over-month and was down 3.3% year-over-year. However, used car prices this year are down 14.2% compared to 2021, according to the Cox Automotive Manheim Used Vehicle Value Index. Now Tesla used cars have joined the freefall, the average price for a used Tesla in November was $55,754, down 17% from a July peak of $67,297 Reuters reported Tuesday. The move is a mix of the collapsed used car market and the collapse of Tesla’s share price.

Image: KnovaArt

In the July to November period the overall used car market posted a 4% drop according to Edmunds data, so Tesla used cars have outpaced that fall. The move coincides with the aggressive anti Elon Musk movement since he acquired Twitter by mainstream media, the more leftist side of social media and politics and even The White House.

Reuters Graphics

Partisan divide in Tesla emerging – Morning Consult

With manic crowd behavior it is never that simple. There are two ways of looking at this movement, many of these same people now in the Hate Elon camp were Tesla and the EV market’s biggest cultists and feel betrayed by Musk uncovering many attacks on those with middle to right viewpoints by the previous Twitter owners. Self-identifying Democrats in particular have turned against Tesla since Mr. Musk bought Twitter in late October, according to data from research firm Morning Consult.

On Nov. 7, for the first time since YouGov began tracking Tesla in 2016, more respondents in the U.S. reported a negative perception of Tesla than a positive view. The brand perception has eroded further since, according to YouGov data.

Morning Consult also found that more people hold a negative view of Tesla than at the start of the year. In surveys of about 200 people in the U.S. each day this month through Nov. 27, roughly 22% had a negative impression of the company, compared with 15% in January. 

Morning Consult said 38% of those surveyed this month through Nov. 27 had a positive impression of Tesla, down from 43% in January.

  • Tesla’s net favorability among self-described Democrats in the U.S. fell to an average of 10.4% through Nov. 27, down from an average of 24.8% in October.
  • It rose to 26.5% from 20% among self-described Republicans during the same period.
  • Via Morning Consult

“It seems like Tesla is on its way to becoming a partisan brand,” said Jordan Marlatt, tech analyst at Morning Consult. 

Tesla Stock Catching Up to Technology Stock Freefall

Clearly this fallout is significant but there is in addition another viewpoint is more along our view, that Tesla was overpriced for too long, ignoring demand destruction in China, the COVID outbreak, the energy crisis, heck Switzerland even banned EV charging during the energy crisis at certain price points. Additionally, Tesla’s stock price was ignoring the overall demise of the technology stock market as had Apple, now both are down hard with the Covid Zero policy the acknowledged catalyst for Apple, why is it ignored by many for Tesla? Not to mention the Federal Reserve has been aggressively raising interest rates in that time.

Apple also fell as NASDAQ weakened but not as much as TSLA

The market was also eating up Elon Musk’s billion-dollar sales and much of the length was being held in short, dated options which were obviously losing as the stock fell. Eventually that weight was too much and given many had been selling puts as part of a strategy they were also in trouble being forced to cover their delta losses.

Tesla stock finally caught up with the market after being over valued for so long

The move up attracted by big, short players such as Jim Chanos and Michael Burry, who were roundly mocked by the bull market geniuses and Tesla cultists. The long trade was very crowded and there were not the buyers sitting there that cultists had expected to support the stock. (That is how cults work, the live in a dream fed by like-minded and why partisan politics are a dangerous affliction when applied to investments.)

Tesla stock is down ~66% YTD (Dec 29, 2022) and down 70% from its all-time high in November 2021 in its biggest-ever annual decline.
TSLA outpaced US indices lower:

  • Dow Jones Industrial Average: -8.6% YTD
  • S&P Midcap 400: -14.1% YTD
  • S&P 500: -19.2% YTD
  • Russell 2000: -21.3% YTD
  • Nasdaq Composite: -33.0% YTD
  • Tesla -66.03% YTD
via WSJ

Whatever your theory on Musk and Tesla the simple fact is the safety blanket for many Tesla owners was its resale value, the price was going up, much like the old Porche 911 affect. That is over and in quick dramatic fashion. There is also a good number of Tesla owners that also own tesla stock, though we are not sure of the exact percentage, but there is a related affect there also.

Firstly, lets revisit those numbers from the car auction company Manheim. This is the largest used car price dive ever based on the firm’s data. Cox Automotive reported that its Manheim Used Vehicle Value Index, which tracks the auction prices of used cars, plunged 14.2% from a year ago. The index has also slid to the lowest point since August 2021 as used-car sales fell 10% in November. 

We on the TC desk are more surprised that the glaringly obvious, the slowdown in the economy, the fall in real wages and inflation affects are not glaringly obvious to all. Clearly some of that is the “we hate Elon campaign” but still the stock and therefore the used cars were defying gravity. When gasoline prices fell in that same period it pointed out the unaffordability of luxury EV’s like Tesla and the inflation effect on food and natural gas versus lower gasoline prices was what we used to call a no brainer.

Tesla Car Lot via Carvana

Reuters reported that used Teslas were in dealer inventory for 50 days on average in November, compared with 38 days for all used cars. What the Manheim index and CPI reports were also confirming.

Reuters Graphics

Tesla price were going up, like all electric vehicle because of the higher input costs for one thing. This also pushed buyers out and demand has faltered. In response Tesla on Dec. 1, Tesla started offering a $3,750 “credit” on Model 3 and Model Y vehicles delivered before the end of the year. It raised the credit to $7,500 last Wednesday. TSLA also recently started offering free supercharging for 10,000 miles (16,093 kms) for vehicles delivered in December.

The weaker economy and lower real wages are also forcing people to sell their new Teslas, this was clear from the percentage of 2022 models hitting the used car market. This is not good for prices; supply is overwhelming demand. “You can’t sell your current Tesla for more money than you paid for it, which was true for a lot of the past two years,” said Karl Brauer, executive analyst at car sales website iSeeCars.com. “That would reduce demand for new Teslas.”

Reuters Graphics

While it is clear that Tesla is not alone used car seller CarMax was savaged after it announced earnings last week. The company reported an 86% drop in third-quarter profit. What has set aside was Tesla branding, the cult impact we alluded too, plus it was really the only EV in town, that is no longer the case.

“There’s concern that demand will fall just as Tesla’s ramping up their factories, and they’re not going to see the volume growth that the market had been anticipating previously,” said Seth Goldstein, an equity strategist at Morningstar Research Services.

Clearly the Musk brand and therefore the Tesla brand is impacted by the fallout from twitter and Musk these past months. Will that recover, will EV prices recover, will energy prices fall. Remember to charge an electric car you need power, a minor detail the EV cultists never grasped until natural gas prices exploded since the Russian invasion of the Ukraine. These prices have since collapsed back to earth, but energy companies were forced to hedge at ludicrous prices with all the political meddling. Germany’s Uniper as the poster child for this.

Germany’s Uniper lost twice (at least) with its gas hedging in 2022

Interesting times for Tesla car owners and Tesla stockholders alike. The difference is Tesla the company is more than cars, Tesla cars at some point are just another electric vehicle if they lose the wow factor. There has been in an influx of new electric vehicles to choose from, J.D. Power says 53 EV models are either on the market or soon to be rolled out, compared with 625 separate vehicle models sold overall in the U.S. in 2022.

About Tesla

Tesla, Inc. designs, develops, manufactures, sells and lease electric vehicles and energy generation and storage systems, and offer services related to its sustainable energy products. The Company’s segments include automotive, and energy generation and storage. The automotive segment includes the design, development, manufacturing, sales and leasing of electric vehicles as well as sales of automotive regulatory credits.

The energy generation and storage segment include the design, manufacture, installation, sales and leasing of solar energy systems and energy storage products, services related to its products, and sales of solar energy system incentives. Its automotive products include Model 3, Model Y, Model S and Model X. Model 3 is a four-door sedan. Model Y is a sport utility vehicle (SUV) built on the Model 3 platform. Model S is a four-door sedan. Model X is an SUV. Its energy storage products include Powerwall, Powerpack and Megapack

Source: Tesla, Reuters, zerohedge WSJ

From The TradersCommunity Research Desk