- Elon Musk has argued that Tesla stock has crashed this year because the Fed is raising interest rates.
- But Musk’s argument has a major flaw, according to Tesla investor and Future Fund director Gary Black.
- “Since you closed on TWTR, TSLA -38% vs. NDX -1%. If it was all int rate, NDX would be down a similar amount,” Black wrote.
With Tesla stock down 61% year-to-date, pressure is mounting on Elon Musk to turn his attention back to the electric vehicle company and move away from the newly acquired social media platform.
Tesla investors, including KoGuan Leo, Ross Gerber and Gary Black, have attributed the sharp price drop in Tesla stock to the fact that Musk is not necessarily a full-time CEO as he juggles running SpaceX, Tesla and now of Twitter.
However, according to Musk, the drop in Tesla’s stock price can be attributed to the Federal Reserve’s aggressive rate hikes this year, not its external business activities.
“Simply put: as bank savings rates, which are guaranteed, begin to approach stock market returns, which are not guaranteed, people will move more and more of their money out of stocks and into cash, causing a fall of stocks,” Musk wrote on Twitter. Tuesday.
Musk shared the same sentiments in a tweet last week, saying in response to the recent drop in Tesla’s stock price: “Tesla is executing better than ever! We don’t control the Federal Reserve. That’s the real problem here.”
Musk is right that higher interest rates can reduce demand for risky stocks, as investors can find attractive returns with relatively low risk elsewhere. But there’s a big flaw in Musk blaming the Fed for Tesla’s recent share price woes, according to Black, who manages The Future Fund, which counts Tesla as its top position.
“Elon – you can’t compare a very short bank to a long $TSLA stock… Since you closed on TWTR, TSLA [is down] -38% vs. NDX [Nasdaq 100] -1%. If it were all [interest] rates, the NDX would decline by a similar percentage,” Black said tweeted the billionaire on Tuesday.
Black points out that while higher interest rates have no doubt weighed heavily on stocks this year, including the tech-heavy Nasdaq 100, which is down 32% year-to-date, that doesn’t explain why Tesla is down 39% since Musk closed the market of Twitter.
In fact, since Musk bought Twitter, the Fed has signaled that it is closer to the end of rate hikes than the beginning. The Fed raised interest rates by only 50 basis points at its December FOMC meeting, compared to the previous four rate hikes of 75 basis points.
Even ARK Invest’s Innovation ETF, which is highly sensitive to interest rate movements since it invests primarily in unprofitable companies that rely on debt and equity to finance their business, is down just 13% since the Musk bought Twitter.
This lends credence to the idea that, yes, while higher interest rates don’t help a high-growth company like Tesla for a number of reasons, most of the recent movement has more to do with investor concerns about Musk’s management of Twitter. at the expense of Tesla. Not to mention Musk’s sale of billions of dollars in Tesla stock to fund his acquisition of the social media company, which Musk says is still cash-flow negative.
Despite Tesla’s decline, Black remains loyal to Tesla and continues to own it, arguing that it is currently trading at its lowest valuation on record. Cathie Wood is also bullish and has bought the stock down this quarter.