Tesla, the electric vehicle (EV) giant, experienced a significant drop in its share price, closing down approximately 5% at $209.98. This decline came following HSBC Global’s initiation of coverage with a “reduce” rating and a price target of $146. The HSBC analysts pointed out that Elon Musk, the CEO of Tesla, is both an asset and a risk to the company. They highlighted his charisma and the cult-like following he has garnered, which feeds into the innovator narrative surrounding Tesla. However, the analysts raised concerns about the “hope” that is already baked into Tesla’s share price, particularly with regards to its ambitious future tech projects such as driverless systems, humanoid robots, and supercomputers. According to HSBC, these ideas need to materialize into reality to support the current share price.
HSBC’s note on Tesla acknowledged the potential risks and opportunities facing the company. On the bearish side, significant delays or the revelation of lack of technological and/or regulatory feasibility of Tesla’s projects pose a significant risk. These setbacks could harm Tesla’s future commercial launches. Conversely, HSBC analysts recognized that Tesla’s core automotive business faces fewer challenges compared to its competitors, positioning it to deserve a premium. They asserted that EVs, as a result of rising market penetration, will continue to be a growth market for decades. Moreover, Tesla’s cost leadership and ambitious scale make it likely to sustain its status as the cost leader in the EV market.
Another positive aspect mentioned by HSBC is the potential for a faster-than-expected development in Tesla’s technological projects. If these projects progress rapidly, it could lead to a re-rating of Tesla’s multiples. Additionally, higher-than-expected market share gains resulting from Tesla’s price cuts in its core electric vehicle business may also contribute to positive market sentiment towards the company.
Labor Strikes in Sweden and President Biden’s Support for Unions
Adding to Tesla’s challenges, the company is grappling with a widening strike in Sweden. Tesla is facing pressure from Swedish unions due to its refusal to sign a collective bargaining agreement with employees in its service division, including technicians and mechanics responsible for repairing and maintaining customers’ cars. The IF Metall trade union initiated strike action at 12 Tesla service centers on October 27. Furthermore, dockworkers who are members of the Swedish Transport Workers Union have warned that they will refuse to unload Teslas at ports in the region if Tesla fails to negotiate a labor agreement by November 17. Electrical workers responsible for maintaining Tesla’s charging stations have also threatened to strike from November 17 onwards if an agreement is not reached.
The labor action may potentially extend to Norway, amplifying the challenges facing Tesla in the Scandinavian region. In a notable development, President Joe Biden voiced his support for the ambitions of union leaders, including UAW President Shawn Fain, who aspires to strike collective agreements with Tesla, Toyota, and other automakers. Fain even remarked during an online broadcast in October that when the UAW returns to the bargaining table in 2028, it won’t only be with the ‘Big Three’ (Ford, GM, and Chrysler) but possibly with the ‘big five or big six.’
Amidst these challenges, Tesla has planned a Cybertruck event at the end of the month. Although the final specifications and pricing of the Cybertruck have yet to be revealed, Tesla has already showcased the vehicle at various promotional events. However, the reception from both auto critics and professionals has been largely negative. Critics have criticized the build quality and design of the Cybertruck, casting doubt on its potential success in the market. This negative feedback adds yet another hurdle for Tesla to overcome as it seeks to establish a strong position in the highly competitive EV market.
Tesla faces a multitude of challenges that have impacted its share price, including HSBC’s “reduce” rating, labor strikes in Sweden, and criticisms of the Cybertruck. While there are opportunities for Tesla, such as market growth and its cost leadership in the EV industry, significant risks persist in the form of project delays, regulatory hurdles, and labor disputes. As Tesla navigates these obstacles, its ability to deliver on its promises and maintain its innovative edge will be crucial in determining its future success.
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