Erika Ramirez/Insider
Elon Musk has argued that Tesla stock has been crushed this year because the Fed is raising interest rates. But Musk’s argument has one big flaw, according to Tesla investor and Future Fund manager Gary Black.“Since you closed on TWTR, TSLA -38% vs NDX -1%. If it was all int rates, NDX would be down a similar amount,” Black tweeted.
With Tesla stock down 61% year-to-date, pressure is building on Elon Musk to turn his attention back to the electric vehicle company and away from his recently acquired social media platform.
Tesla investors including KoGuan Leo, Ross Gerber, and Gary Black have attributed the sharp price decline in Tesla stock to the fact that Musk is not necessarily a fulltime CEO given that he is juggling the management of SpaceX, Tesla, and now Twitter.
But according to Musk, Tesla’s stock price decline can be attributed to the Federal Reserve’s aggressive interest rate hikes this year rather than his outside business activities.
“In simple terms: as bank savings account interest rates, which are guaranteed, start to approach stock market returns, which are not guaranteed, people will increasingly move their money out of stocks into cash, thus causing stocks to drop,” Musk tweeted on Tuesday.
Musk shared those same sentiments in a tweet last week, saying in response to Tesla’s recent stock price decline: “Tesla is executing better than ever! We don’t control the Federal Reserve. That is the real problem here.”
Musk isn’t wrong about the fact that higher interest rates can reduce demand for risky stocks as investors can find attractive yields with relatively low risk elsewhere. But there is a big flaw in Musk’s blaming of the Fed for Tesla’s recent stock price woes, according to Black, who is a managing partner of The Future Fund, which counts Tesla as its top position.
“Elon – you can’t compare a very short duration bank with long duration $TSLA stock… Since you closed on TWTR, TSLA [is down] -38% vs NDX [Nasdaq 100] -1%. If it was all [interest] rates, NDX would be down a similar amount,” Black tweeted at the billionaire on Tuesday.
Black is pointing out that while higher interest rates no doubt weighed considerably 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 his purchase of Twitter.
In fact, since Musk acquired Twitter, the Fed has signaled that it is closer to the end of its interest rate hikes than the beginning. The Fed hiked interest rates by only 50 basis points at its December FOMC meeting, compared to its prior four interest rate hikes of 75 basis points.
Even ARK Invest’s Innovation ETF, which is highly sensitive to interest rate moves given that it mostly invests in unprofitable companies that rely on debt and equity to fund their business, is down just 13% since Musk acquired Twitter.
That gives credence to the idea that, yes, while higher interest rates are not helping a high-growth company like Tesla for a host of reasons, the bulk of the recent move is more so related to investor concerns about Musk’s management of Twitter to the detriment of Tesla. Not to mention Musk’s selling of billions of dollars of Tesla stock to fund acquisition of the social media firm, which according to Musk, is still seeing negative cash-flows.
Despite Tesla’s decline, Black remains a believer in Tesla and continues to own it, arguing that it is currently trading at its lowest valuation on record. Cathie Wood is also still bullish, and has been buying the dip in the stock throughout this quarter.