Elon Musk and Tesla shareholders are at a crossroads.
Hit by a bruising price war, intensifying competition in North America, Europe and China, and Musk’s demands for billions in new Tesla shares, the electric vehicle’s stock has plunged this year, lopping roughly $130 billion off its market capitalization.
Shares are down roughly 8 percent on Thursday in premarket trading after Wednesday’s lackluster year-end results.
But Musk sees reason for optimism. He asked investors to look beyond 2024, predicting a “major growth wave” fueled by a low-cost Tesla model that will be built partly in Austin, Texas, and Mexico.
Wall Street doesn’t appear to be buying the message. The latest stock fall comes after Tesla reported that fourth-quarter profit nearly doubled to $7.9 billion — largely thanks to a one-time tax break. The company also declined to give detailed full-year guidance, but said it expected sales growth to be “notably slower.”
“Tesla is signaling that the days of 50 percent or even 30 percent to 40 percent growth year-over-year is not going to happen in 2024,” Seth Goldstein, a Morningstar Research analyst, told Bloomberg. “At a certain point, you can’t cut prices anymore.”
Musk doubled down on his call for more shares. He stunned investors this month when he said that if the board didn’t increase his stake, to 25 percent from 13 percent, he would consider developing new artificial intelligence products “outside of Tesla.” That spooked even Tesla bulls who feared that granting Musk so many shares would dilute their holdings. Failing to do so could risk Musk hiving off the A.I. work that had driven investor enthusiasm in the stock.
Musk said the move was a form of protection from “some sort of random shareholder advisory firm.” He added, “There’s a lot of activists that basically infiltrate those organizations and have, you know, strange ideas about what should be done.”
HERE’S WHAT’S HAPPENING
Interest rates are in the spotlight again. The European Central Bank is expected to leave its prime lending rate unchanged today, though investors will look for clues about whether it will begin cutting by the summer as signs of slowing inflation and declining growth affect the eurozone economy. The Fed is up next, with a decision scheduled for Jan. 31.
The Fed pulls an emergency funding lifeline for banks. The Bank Term Funding Program, a measure created during the regional banking crisis last year that offered cheap loans to struggling lenders amid an extraordinary run on deposits, will expire in March. As a result, the interest rates on new loans offered by the Fed to banks will rise by about 0.5 percentage points.
Tech giants hit new valuation heights. Microsoft on Wednesday became the second company to reach a market capitalization of $3 trillion, while Meta crossed the $1 trillion threshold for the first time since 2021. Both companies have gained support from investors who hope that they will prove to be leaders in deploying artificial intelligence software.
‘This won’t be back to business as usual for Boeing’
Boeing’s share price is in the red again in premarket trading on Thursday after the F.A.A. imposed new restrictions on the jet maker that could hamper the company’s growth plans and those of its increasingly frustrated airline customers.
The regulator said Boeing couldn’t expand production of 737 Max planes. The company had been seeking to bolster production of the aircraft, a cash cow, as it falls further behind Airbus.
It’s another blow for Boeing since a Jan. 5 episode in which a door panel blew off a Max 9 operated by Alaska Airlines. That forced the grounding of about 170 Max 9s, and has shaken the sector’s confidence in Boeing’s production processes.
The Biden administration is increasing the pressure. “Let me be clear: This won’t be back to business as usual for Boeing,” Mike Whitaker, an F.A.A. administrator, said in a statement on Wednesday. The federal government also intends to step up scrutiny of the company’s quality control processes. “Right now everything is on the table,” said Pete Buttigieg, the transportation secretary.
Could Washington go further? Questions are swirling over whether the White House will rescind a deferred prosecution deal Boeing agreed with the Trump administration after two fatal 737 Max crashes, The Lever reports.
Boeing says its problems are fixable. After meeting with lawmakers in Washington on Wednesday, Dave Calhoun, Boeing’s C.E.O., struck a reassuring note. The Max 9 issues could be resolved “in days and weeks, not months,” he said, even as airline customers have expressed growing skepticism in recent days.
It wasn’t all bad news for Boeing. The F.A.A. approved new inspection guidelines for the Max 9s. That clears the way for the plane to fly again soon, with airlines allowed to resume operations once their checks are completed. United and Alaska Airlines said they expected the Max 9s to return to the skies in the coming days.
And Boeing reportedly delivered a 737 Max to a Chinese airline for the first time in five years. China is a crucial market for Boeing’s growth ambitions.
Next up: Boeing is expected to give investors a year-ahead outlook on next week’s earnings call, but shares have already fallen more than 16 percent this month over Max concerns.
Trump vs. the billionaires
After Donald Trump’s double-digit win in the New Hampshire Republican primary, donors who had supported his opponents, like Nikki Haley, have been weighing whether to accept the seemingly inevitable and back the former president.
But to holdouts, Trump issued a blustery warning: Get on board, or get lost.
Those who continue to donate to Haley “will be permanently barred from the MAGA camp,” Trump wrote on his Truth Social platform. “We don’t want them, and will not accept them, because we Put America First, and ALWAYS WILL!”
Haley shot back in a post on social media: “Well in that case…donate here. Let’s Go!” with a link to a fund-raising page. She also said that she had raised more than $1 million since the New Hampshire primary.
The fight underscores a growing dilemma for anti-Trump donors. Many flocked to Haley in recent months because she appeared to be the best chance of challenging the former president. Those backers include Wall Street luminaries like Stanley Druckenmiller, Henry Kravis and Cliff Asness, who are — for now — hosting a fund-raiser for Haley’s campaign on Jan. 30. And the Silicon Valley investor Tim Draper is planning to host an event for Haley in California next month.
But representatives for well-known donors including Ken Griffin and Paul Singer are set to meet soon in Palm Beach, Fla. to discuss whether backing Haley is increasingly a bad investment, according to Puck.
Haley is already seeing some money dry up. Reid Hoffman, the LinkedIn co-founder and Democrat who donated $250,000 to a super PAC for the former governor of South Carolina, has decided to close his wallet, according to CNBC.
How long could Haley’s campaign last? To some political analysts, conceivably into March, as vehemently anti-Trump camps like the Koch family’s political apparatus continue to publicly stand by her.
Meanwhile, business is trying to map out a new Trump administration There are few certainties, according to The Wall Street Journal’s Greg Ip, other than more trade wars — Trump has proposed an across-the-board 10 percent tariff on imports — and a lighter touch on regulation.
What corporate leaders may fear the most is whether a Trump 2.0 administration is driven by personal animus, including replacing Jay Powell atop the Fed with a more pliant chair and exacting revenge on perceived enemies.
Putting SPACs on a leash
The boom in SPACs, the publicly traded shell companies that briefly became the way to take companies public, ended years ago. New rules approved by the S.E.C. are meant to make it harder for them to regain that kind of popularity.
The S.E.C. is requiring SPACs to provide more information to investors, adopting measures on Wednesday that effectively make those vehicles more like a traditional I.P.O. (SPACs, which merge with privately held companies and give those businesses their stock ticker, have long been criticized for insufficient transparency over fees and other matters.)
“Just because a company uses an alternative method to go public, does not mean that its investors are any less deserving of time-tested investor protections,” Gary Gensler, the S.E.C. chair, said in a statement.
SPACs soared in 2020 and 2021, amid market froth that also propelled the rise of meme stocks and cryptocurrencies. More than 860 SPACs raised $246 billion during the period, according to the research provider SPACInsider.
But interest in them has since cratered. The number of SPACs fell in the past two years, partly because investors became wary of potential new regulations.
Longtime skeptics hailed the new rules. Senator Elizabeth Warren, Democrat of Massachusetts, has argued that they benefited wealthy financiers and market insiders at the expense of retail investors. “Wall Street insiders create and abuse SPACs to rig markets and line their pockets, guaranteeing themselves huge returns even when their dubious investments fail,” she told DealBook.
Defenders of SPACs said it would become harder for some companies to go public. These include the two Republican commissioners on the S.E.C., who voted against the new rules. “Over the long term, this may result in fewer opportunities for companies to access our public markets and fewer opportunities for people to make investments,” said Mark Uyeda, one of the dissenters.
THE SPEED READ
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