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Tesla Bulls Brace for a Rough Year Ahead

Darker times for Tesla investors.Credit…Filip Singer/EPA, via Shutterstock

Elon Musk faces a “reality check” as Tesla sinks

With its stock in free fall and competition mounting on all sides, Tesla appears to be losing its most bullish supporters on a daily basis.

Shares in the electric car maker sank 12 percent on Tuesday, shaving roughly $47 billion (or, the equivalent of Ford’s entire market valuation) off its market cap as investors worry about growth in the year ahead. Zooming out, the Elon Musk-led company has lost more than $850 billion in market value since its peak in November 2020.

Wall Street is growing pessimistic. Analysts at Goldman Sachs and Cowen cut their price targets after Tesla disclosed on Monday that it had missed its 2022 year-end goal for new deliveries despite offering steep discounts on some models. Adam Jonas, an auto analyst at Morgan Stanley who has long championed the company, is now forecasting a decline in earnings over the next year.

“2023 will definitely be a reality check, because electric car makers will have to swim more on their own,” Matthias Schmidt, an independent auto analyst, told DealBook. “And Tesla will feel it.”

Tesla shareholders could face more disappointment this year. Schmidt sees four challenges for Tesla:

  • Soaring interest rates will make car loans pricier, potentially sapping consumer demand.

  • Consumer incentives are also evaporating in markets like Britain, Germany and Sweden. (The opposite is happening in the U.S. under the Inflation Reduction Act.)

  • Protectionist policies in countries like China and Japan will increasingly favor domestic players.

  • Consumers now have more choice in electric vehicles, including the Ford Mustang Mach-E and the Volkswagen ID3. In Europe, the world’s second biggest E.V. market behind China, Tesla’s market share of new electric vehicles sold has fallen from 33 percent in 2019 to about 15 percent, Mr. Schmidt calculates.

Mr. Musk himself has blamed the Fed’s aggressive interest rate rises for the sinking share price. But Tesla investors including Ross Gerber, a co-founder of Gerber Kawasaki, think he is too distracted by the travails of running Twitter to focus on righting the ship at Tesla.

Following Tuesday’s stock price drop, a nostalgic Mr. Musk tweeted, “12 months ago, I was Person of the Year.” Mr. Gerber responded, “easy come, easy go …”

Do investors have reason for hope? Reuters reports that Tom Zhu, Tesla’s China chief, will now oversee U.S. plant operations and sales in North America and Europe. “That’s a huge admission from Musk he needs help,” Mr. Schmidt said.

In other Tesla news: Musk has subpoenaed Yasir Al-Rumayyan, the head of Saudi Arabia’s sovereign wealth fund, as part of his defense against an investor lawsuit over his 2018 comments about taking Tesla private.

HERE’S WHAT’S HAPPENING

Representative Kevin McCarthy will try again to become House speaker. The California Republican failed to win over hard-right members of his party through three ballots on Tuesday, bringing House business to a standstill. Democrats don’t intend to work with McCarthy to break the impasse and criticized Republicans for the chaos.

More Coverage of Damar Hamlin’s Collapse

  • N.F.L.’s Violent Spectacle: The appetite for football has never been higher, even as viewers look past the sport’s toll on players’ lives. Damar Hamlin’s collapse should force a reconsideration, our columnist writes.
  • Outpouring of Support: Athletes, public figures and fans took to social media to share prayers and concern for Mr. Hamlin, while thousands donated to a GoFundMe page he had set up for a toy drive.
  • Injury Disclosures: The N.F.L.’s protocols for dealing with the health consequences of football are heavily scrutinized, but the league typically makes public only certain information about injuries.

Beijing vows to fight back over Covid restrictions on Chinese travelers. New testing requirements by several countries — including Australia, Canada and the United States — were political acts that merit retaliation, a government official said. It’s the latest sign that the coronavirus remains politically sensitive for Beijing, as the dismantling of its zero-Covid policies lead to a surge in new cases.

Apple’s market valuation falls below $2 trillion. Shares fell on Tuesday as investors worry about slowing sales of iPhones, AirPods and MacBooks. Apple was the last company to hold onto a $2 trillion market cap; Microsoft lost that status last year.

Microsoft workers form a union. Employees of ZeniMax, a video game studio that the tech giant bought last year, voted to organize. Unlike other tech companies, Microsoft — which is trying to get its $69 billion takeover of Activision Blizzard approved — stayed neutral throughout the organizing campaign and recognized the union.

Microsoft reportedly plans to use ChatGPT’s A.I. for search. The company, which has invested $1 billion in the chat bot’s creator, OpenAI, is working on incorporating the tech into a new version of its Bing search engine, according to The Information. That could help Microsoft get a leg up on Google, which has declared ChatGPT a “code red.”

Sam Bankman-Fried prepares for a legal battle

The FTX founder Sam Bankman-Fried pleaded not guilty to fraud charges related to the collapse of his crypto exchange. (His trial is set to begin on Oct. 2.) The back-and-forth on Tuesday between his lawyers and federal prosecutors in a Manhattan courtroom suggests that he is gearing up for a potentially titanic legal fight.

Here are the highlights from Tuesday’s hearing:

  • Prosecutors asked the presiding judge for a new bail condition that would block Mr. Bankman-Fried from transferring any funds from FTX or its trading affiliate, Alameda Research. (The judge authorized the request.)

  • Mr. Bankman-Fried’s lawyers requested that the names of two other co-signers for his bond, aside from his parents, remain sealed to protect their privacy. (This was also approved.)

  • Prosecutors also described what they said was a growing body of evidence, including documents provided by banks, employees, political campaigns, internet service providers and FTX’s new leaders.


A fight over frozen crypto assets

The fallout from the collapse of Sam Bankman-Fried’s FTX empire is still reverberating across the crypto sector as it confronts angry investors and new lawsuits, and executives turn on each other. Cameron Winklevoss, a co-founder of the crypto exchange Gemini, has blamed Barry Silbert, the founder of Digital Currency Group, the crypto conglomerate, for his own customers’ troubles.

“This mess is entirely of your own making,” Mr. Winklevoss wrote in an open letter published on Twitter. He said that 340,000 customers were owed a total of about $900 millionon Gemini Earn, a product that allowed customers to earn up to 8 percent interest on their digital coins by lending them to Genesis Global Capital, a DCG subsidiary. Genesis, which has about $175 million frozen on FTX, halted withdrawals in November following FTX’s collapse, ultimately leaving Earn users out of pocket.

Mr. Winklevoss accused Mr. Silbert of borrowing from Gemini customers. “You hide behind lawyers, investment bankers and process,” he wrote, and accused him of “bad faith stalling tactics.” Mr. Silbert fired back that Gemini had not responded to its latest resolution offer and denied claims about DCG’s finances.

Late last month, Earn investors filed a proposed class action in New York federal court, naming Gemini and its founders Cameron and Tyler Winklevoss. The lawyers behind the suit, Hee-Jean Kim and James Serritella, told DealBook that they regard the Winklevoss letter as an attempt to shift the blame for investor losses in Earn, which Gemini had marketed as risk-free and akin to a “crypto savings bank.”

Gemini faces one of crypto’s existential questions: When is a crypto product a security? The suit alleges that Gemini failed to register Earn with the S.E.C. and didn’t disclose material information to investors. (In previous cases, BlockFi, the bankrupt crypto lender, settled charges with the regulator last year after failing to register a similar product, and the agency blocked a proposed interest offering from the crypto exchange Coinbase in 2021.)

Gary Gensler, chair of the S.E.C., told DealBook in a recent interview that the products are all securities “whether you call it rewards, yield or staking,” and that the crypto industry is beset by conflicts of interest when “providing an earn, yield or staking service and an exchange function.”

Gemini, Genesis and DCG declined to comment.


“It’s taking longer to get stuff out the door.”

— Adria Bagshaw, vice president of the industrial parts maker W.H. Bagshaw. The company and many others are finding productivity falling as employees leave for other jobs, forcing employers to constantly train new hires.


The N.F.L.’s latest crisis

The N.F.L. is a financial juggernaut that generated $11 billion in revenue in 2021 and just signed a seven-year streaming deal with YouTube that could be worth $2.5 billion a year — an indication of professional football’s continued pull.

But the league is now facing one of its biggest crises in decades, writes The Times Ken Belson, as the Buffalo Bills defender Damar Hamlin remains in critical condition after he suffered cardiac arrest in a game against the Cincinnati Bengals on Monday.

Questions persist over how the N.F.L. handled the incident. Joe Buck, the ESPN broadcaster, initially said the players had been told they would have about five minutes to get ready to resume the game (it was ultimately postponed and the N.F.L. denied that it had given any consideration to a restart). ESPN said it had been in constant communication with the N.F.L. during the broadcast and “we reported what we were told in the moment.”

Violence is increasingly the focus as football participation rates fall. The N.F.L., which has set an annual revenue goal of $25 billion by 2027, has spent millions trying to shift the narrative from the more violent aspects of the game amid a string of high-profile player injuries. The league recently opened an investigation into the handling of a concussion suffered by the Miami Dolphins quarterback Tua Tagovailoa; Hamlin’s teammate, the Bills cornerback Dane Jackson, was immobilized after hurting his neck in a game.

The next big decision is whether to finish the Bengals-Bills game. Both teams are vying for a bye in the first round of the playoffs heading into the last weekend of the regular season. But it’s unclear whether the players are mentally prepared to play while Hamlin remains hospitalized, or if the public will want a time out, too.

THE SPEED READ

Deals

  • General Electric completed the spinoff of its health care division, as part of its plan to break itself into three separate companies. (General Electric)

  • The University of California will invest $4 billion in Blackstone’s embattled BREIT real estate fund to shore up confidence after a wave of redemptions. (WSJ)

  • Chinese regulators approved Ant Group’s plan to raise $1.5 billion for its consumer division, a sign of progress in the Chinese fintech company’s government-mandated overhaul. (Bloomberg)

  • Amazon borrowed $8 billion to help prepare for an “uncertain macroeconomic environment.” (TechCrunch)

  • Cooper Morgenthau, the former C.F.O. of a SPAC, pleaded guilty to embezzling money from that fund to trade in meme stocks. (Bloomberg)

Policy

  • Here’s how U.S. lawmakers fared in their stock trading in 2022: Both parties outperformed the S&P 500, with Representative Patrick Fallon, Republican of Texas, doing the best. (Unusual Whales)

  • Twitter will expand political advertising on its platform, largely reversing a ban adopted in 2019. (‌‌NYT)

  • Kentucky accused 11 companies, including BlackRock, Citigroup and JPMorgan Chase, of boycotting the fossil-fuel industry, the latest state to push back against E.S.G.-focused investing. (Bloomberg)

Best of the rest

  • Google and Meta represented less than 50 percent of U.S. digital ad dollars spent last year, the first time since 2014, as Amazon and TikTok gain momentum. (WSJ)

  • Crown Prince Mohammed bin Salman of Saudi Arabia is reportedly clashing with the financial professionals who help run his kingdom’s $600 billion sovereign wealth fund. (WSJ)

  • Denmark reported zero bank robberies last year, a first, as the nation goes cashless. (Bloomberg)

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