Is Elon Musk the biggest risk to the Tesla share price?

The Tesla share price looks expensive. But Stephen Wright thinks the best shot at a buying opportunity is based on the CEO, not the growth prospects.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

pensive bearded business man sitting on chair looking out of the window

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Tesla (NASDAQ:TSLA) share price has more than doubled in 2023. The company has a dominant position in the electric vehicle market and unrivalled potential opportunities for growth.

While there’s uncertainty around robotaxis, supercomputers, and humanoid robots, a number of commentators think Tesla shareholders should be more worried about Elon Musk. Are they right?

Tesla’s business

To date, Tesla has achieved a lot. It’s the world’s largest manufacturer of electric vehicles and it seems to be making the most progress of anyone with driverless vehicle systems.

Price reductions in 2023 are weighing on short-term margins. But an industry-wide slowdown has forced its rivals into retreat on autonomous driving projects, putting the company further in the lead.

The share price still reflects a degree of risky optimism about whether robotaxis will become a reality, when this will happen, and what the industry will be worth. But Tesla is clearly in pole position at the moment.

Elon Musk

It often goes unnoticed that Elon Musk doesn’t take a salary out of the business. Instead, the CEO relies on personal loans and uses his equity in the business as collateral.

Some of this was used in Musk’s takeover of X — formerly Twitter — last year. That means Tesla shareholders should be interested in what’s going on at X (and by all accounts, they’re going badly).

Last month, Musk decided to antagonise advertisers who were already boycotting the platform. This seems likely to create further trouble for a business that is burning through cash and has significant debt. 

So what?

Does this matter for Tesla shareholders? After all, as Musk himself points out (rightly, I think) it doesn’t matter what people think of him, the company’s success depends on the quality of the cars it produces.

The issue is a bit more complicated than this, though. There are a couple of ways in which X’s financial troubles might generate downward pressure on the car company’s share price.

If X defaults on its loans, its lenders can sell the Tesla shares held as collateral. But the most obvious way for X to stay solvent is for Musk to restore the balance sheet… by selling his own shares.

A buying opportunity?

Either way, an unscheduled sale is likely to affect the supply and demand balance in the stock market, causing the price to fall. And I think this could be the biggest threat to the Tesla share price in 2024.

The near future doesn’t look like a great economic environment for car manufacturers. But Tesla has demonstrated this year that its share price can not only survive but thrive in these kinds of conditions. 

A forced sale wouldn’t change the underlying fundamentals of the business, though. So if the stock does fall, it could be worth watching out for a buying opportunity in a company that looks expensive at the moment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »

Investing Articles

Legal & General shares look set to give me a mind-blowing 10.22% yield in 2026!

Harvey Jones is getting a brilliant second income from his Legal & General shares and expects even more to come.…

Read more »

Investing Articles

I’d consider this beaten-down FTSE 100 dividend stock to target a second income of £19,000

Our writer sees an opportunity to earn a substantial second income by investing in this UK insurance giant. Here’s his…

Read more »

Investing Articles

How cheap is the 72p Vodafone share price?

The Vodafone share price looks very cheap having fallen to a 72p price tag. But is it really the bargain…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Up 43% in a year and the IAG share price could keep on rising!

One of the FTSE 100’s highest-flying stocks still looks cheap on an earnings basis. Is this a brilliant buy for…

Read more »