Billionaires: Will Elon Musk continue to cut Tesla prices?

In our fortnightly round-up of the world’s super wealthy, Gautam Adani is reportedly considering a bond buyback and investor Bill Ackman warns that the US regional banking system is at risk

Tesla chief Elon Musk has cut the cost of the company's vehicles in recent months. AP
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Elon Musk

In the two weeks since Tesla alarmed investors by revealing how much of a toll discounts were taking on its profit margins, the electric vehicle maker's billionaire chief executive Elon Musk has bumped prices back up across the line-up.

But the April 20 increases on the Model S and X and last week’s tiny mark-ups on the Model 3 and Y probably aren’t all-clear signals indicating Tesla’s pricing will stabilise for long.

The dynamics that led the company to slash the costs of its vehicles over the past few months — more supply than demand — appear to have stubbornly stuck around.

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“Tesla is clearly transitioning from being supply constrained [where delivery volumes grow in line with production capacity and prices increase] to being demand constrained [where prices fall to stimulate demand and production outpaces delivery],” Toni Sacconaghi, a Bernstein analyst, wrote in a May 1 report.

One of Tesla’s more bullish analysts has arrived at a similar conclusion. Alexander Potter of Piper Sandler just cut his price target to $280 — still the fourth-highest among analysts tracked by Bloomberg — to reflect his concern that the car maker’s valuation might languish for a few months because of falling prices and margins.

“Wait times haven’t spiked meaningfully, so Tesla may cut prices further,” Mr Potter wrote last week, still maintaining his buy recommendation.

Tesla has pulled some relatively inexpensive levers to try to perk up demand. Its order pages recently added a button promoting demo drives, and the company is now offering Model S and X buyers three years of free supercharging.

Mr Sacconaghi has speculated Tesla may start spending on advertising, or offer free trials of the features it calls Full Self-Driving to encourage adoption of the $15,000 driver-assistance system.

The 15 days' supply of vehicles in inventory that Tesla reported for the first quarter is relatively healthy by industry standards. But the way this figure has trended — it is at the highest since the start of the pandemic, even after all the recent price cuts — isn’t encouraging.

The closer the company gets to what is considered the norm in the car sector, the more its market capitalisation of over $500 billion is at risk of shrinking.

Gautam Adani

Adani Transmission, part of Indian billionaire Gautam Adani’s conglomerate, plans to buy back as much as $100 million of bonds issued by a unit in efforts to boost investor confidence, according to people familiar with the matter.

Adani Electricity Mumbai, a wholly-owned subsidiary of Adani Transmission, will announce the bond buyback shortly, one said.

A few banks are believed to be working with Adani Transmission on the deal. A representative from Adani Group declined to comment.

The move is another effort by the port-to-power conglomerate to restore investor confidence after a Hindenburg Research report in January accused it of fraud, and led to a rout of more than $100 billion in its shares and bonds. The group has repeatedly denied the US-based short-seller’s allegations.

Adani Transmission had 35 billion Indian rupees ($428 million) of cash as of December 2022, which is adequate to fund existing obligations, Anil Sardana, the company's managing director, said in a February conference call.

Adani Ports & Special Economic Zone, a unit of Adani Group, said last month it plans to buy back as much as $130 million of its July 2024 bonds and similar amounts in each of the next four quarters.

Bill Ackman

The US regional banking system is at risk and the regulator’s failure to update and expand its insurance regime has “hammered more nails in the coffin”, Pershing Square’s Bill Ackman said.

First Republic Bank was the second-biggest bank failure in US history, and the fourth regional lender to collapse since early March after Silvergate Capital, SVB Financial Group’s Silicon Valley Bank and Signature Bank.

JP Morgan Chase acquired First Republic on Monday, beating rivals including PNC Financial Services Group.

The billionaire investor said First Republic would not have failed if the Federal Deposit Insurance Corporation temporarily guaranteed deposits while a new regime was created.

“Instead, we watch the dominoes fall at great systemic and economic cost,” he said.

“Banking is a confidence game. At this rate, no regional bank can survive bad news or bad data as a stock price plunge inevitably follows, insured and uninsured deposits are withdrawn and ‘pursuing strategic alternatives’ means an FDIC shutdown over the coming weekend.”

Michael Barr, the vice chairman for supervision for the US Federal Reserve, and FDIC chairman Martin Gruenberg are scheduled to testify at the Senate Banking Committee hearings on US bank failures later this month.

The hearings come as Mr Barr leads an effort at the Fed to review a range of rules that apply to companies with more than $100 billion in assets, including stress testing and liquidity requirements, following the failures.

Mr Ackman in March suggested that the FDIC should guarantee all of SVB’s deposits after its collapse, shortly before the US implemented emergency measures to backstop banks. He has repeatedly called for an improvement in the deposit guarantee programme.

He said then that he and Pershing Square had no direct exposure to SVB and that “collectively, my venture exposure is less than 10 per cent of my assets”.

Jack Ma

Billionaire Alibaba Group co-founder Jack Ma has joined the University of Tokyo’s Tokyo College as a visiting professor, according to a profile page on the university’s website.

Mr Ma, 58, began the new position on May 1 and is expected to contribute in several areas, the school said.

He will provide advice on research topics and conduct research, especially in sustainable agriculture and food production; he will also give seminars about entrepreneurship and innovation.

One of China’s most recognisable business leaders, Mr Ma largely dropped out of public sight after he criticised Chinese regulators in 2020 and Ant Group, an Alibaba affiliate he also co-founded, had to pull its planned initial public offering.

“It appears that his career as a businessman has come to a close,” said Oshadhi Kumarasiri, an analyst at LightStream Research who publishes on SmartKarma.

“Although he achieved success in this field, he previously worked as an English teacher and had expressed a desire to return to teaching once he retired from his business ventures.”

The Tokyo school did not detail what kind of lectures or seminars Mr Ma would conduct.

In March, Mr Ma visited a school in Hangzhou, China, to discuss topics including ChatGPT and said he hoped that one day he would resume his former job as a teacher.

In April, he accepted a position as a honorary professor at the University of Hong Kong, although there were no plans for public lectures or speeches in that post.

Mr Ma has long-standing ties to Japan. Masayoshi Son, founder of SoftBank Group, backed Alibaba more than two decades ago and the two men sat on each other’s boards for years.

Updated: May 08, 2023, 7:20 AM