Tesla’s uncertain outlook rattles investors
Investors punished Tesla for cutting its growth forecast on Wednesday, sending shares tumbling nearly 6 percent lower in premarket trading, despite Elon Musk’s efforts to play down worries about slowing demand amid broader worries about the economy and growing competition.
It’s been a drastic fall. Almost a year ago, Tesla raced into the exclusive trillion-dollar club — joining Apple, Microsoft and Alphabet’s Google with market capitalizations in the 13-figure range. Recap: Tesla bulls set off a rally back then after the company’s deal to sell 100,000 cars to Hertz.
On Wednesday, Tesla’s market cap closed at just below $700 billion. Investors continue to fret about recession fears and rising interest rates, which will make car-financing more pricey. Undaunted, Musk told investors that the company would return to those lofty valuations — and even become the world’s most valuable company, bigger than Apple and Saudi Aramco combined. “I will not let you down, no matter what it takes,” he added in a tweet.
Investors seem more focused on the here and now, particularly that Tesla missed out on its shipping targets.
Another concern: whether Musk will need to sell shares to finance his roughly $44 billion deal to buy Twitter. He’s already sold about $15.5 billion this year. Musk revealed little about his plans yesterday, but did admit that he’s “obviously overpaying,” for the tech company.
Big Tesla shareholders have been lobbying for a share buyback. Musk addressed this request yesterday, saying a “meaningful buyback” in the $5 billion to $10 billion range could come next year.
In the meantime, Tesla is struggling with the new realities of rising commodity prices and slowing global demand. As The Times’s Neal Boudette reports, the company sold roughly 20,000 fewer cars last quarter than it made, and it narrowly missed analysts’ profit expectations.
HERE’S WHAT’S HAPPENING
Warren Buffett’s favorite banker and a firm backed by Michael Dell team up. BDT, the merchant bank founded by the former Goldman Sachs banker Byron Trott, said it would merge with MSD Capital, an investment firm born from Dell’s family office. Trott, whom Buffett has praised over the years, will be co-C.E.O. of the combined firm with Gregg Lemkau, another former Goldman executive who leads MSD. “We believe strongly that our firms share a common mission and similar cultures,” BDT executives wrote to investors, “which will underpin our efforts to come together and unlock the full capabilities of our combined firm.”
Could market turmoil like Britain’s happen in the U.S.? Officials at the Fed and the White House quizzed investors on whether the kind of market meltdown that affected British government bonds was possible there, The Times reports. The answer: probably, but not imminently.
What Happened to Elon Musk’s Twitter Deal
A blockbuster deal. In April, Elon Musk made an unsolicited bid worth more than $40 billion for the social network, saying he wanted to make Twitter a private company and allow people to speak more freely on the service.
Britain’s government may be on the brink. Support for Prime Minister Liz Truss appeared to be collapsing, as an increasing number of lawmakers in her own party called for her to step down. Truss has had a torrid 24 hours, including the firing of her home secretary and one lawmaker’s description of her government “as a shambles and a disgrace.”
The Biden administration offers an olive branch to OPEC. The U.S. has quietly assured the oil production cartel that it won’t be subject to the same sort of price caps that the Group of 7 countries are imposing on Russia, Reuters reports. OPEC and Russia teamed up this month to announce drastic cuts to production, drawing President Biden’s public ire.
A federal appeals court undercuts the Consumer Financial Protection Bureau’s reach. A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit ruled that the bureau was unconstitutionally funded, which negated the agency’s ability to regulate payday lending. A spokesman for the agency disputed the ruling, which was made by judges appointed by former President Donald Trump.
The companies having little problem with inflation, so far
On Tuesday, Jeff Bezos, Amazon’s founder, seemed to sum up the big fears hanging over the economy when he tweeted his concern about a pending slowdown, warning his 5.3 million Twitter followers to “batten down the hatches.”
One group that seems to be defying that advice: consumer goods giants, which continue to flex their pricing power. Squeezed by higher commodity prices, firms have passed on higher costs to shoppers by raising prices on products like cereal, detergent and diapers.
Consumers have been willing to pay up. Elevating prices to offset costs has enabled the likes of Nestlé and Procter & Gamble — which both reported healthy third-quarter earnings on Wednesday — to beat analysts’ expectations despite selling fewer goods, reports The Times’s Isabella Simonetti. Nestlé, the Swiss maker of Kit Kat, Nespresso coffee capsules and Purina pet food, raised prices by 9.5 percent in the third quarter compared with the same period in 2021, and up from a 7.7 percent price increase in the previous quarter. The U.S.-based Procter & Gamble, whose brands include Crest toothpaste and Tide detergent, raised prices by 9 percent. Last week, PepsiCo disclosed it has increased prices 17 percent on an annualized basis on its snacks and drinks.
The global inflation crisis could sap any short-term gains. P.&G. said it expected a drop in sales for the fiscal year. Nestlé, in contrast, is sticking with its growth forecast. This comes as consumer prices in most advanced economies are rising at or near a 40-year high, even as central banks ratchet up interest rates to rein in inflation. The cost of one essential food staple — bread — has skyrocketed.
A few hours after P.&G. reported results, unnerved investors sent risky assets, including most stocks, lower. “It didn’t help to have Jeff Bezos join the recession chorus,” Quincy Krosby, an equity strategist for LPL Financial, wrote in a client note.
SPAC up against the wall
Dozens of the publicly traded shell companies formed during the SPAC boom are now running out of time to make a deal.
SPACs raise money in the hopes of buying a private company that is looking to go public without a traditional I.P.O. But there’s a catch: SPAC sponsors must complete a deal within one to two years. If they fail to do so, they have to return the money — taking a loss on the millions in fees that go to lawyers, bankers and others who help set up the investment vehicles.
The rocky market and generally lackluster performance of SPACs post-deal have made pulling off an acquisition more difficult. There are 533 SPACs that have raised money from investors still seeking a suitable acquisition. Of those, about 79 will hit their deadline by the end of the year, according to SPACInsider, which calculated the number for DealBook.
“This is for sure an unbelievably difficult period for this market,” said Kristi Marvin, a former investment banker who runs SPACInsider. This year, 45 SPACs have liquidated or announced they will, returning as much as $12 billion to their original investors, according to the group. Last month, Chamath Palihapitiya, once a prominent and enthusiastic sponsor of SPACs, announced he was closing two of his deals and giving the money back.
But quitting is about to get more expensive. The Inflation Reduction Act’s 1 percent tax on stock buybacks applies to SPAC liquidations as well. Starting Jan. 1, sponsors will have to pay the tax if they liquidate.
Paradoxically, the SPAC is making a modest comeback. October is on pace to see more SPAC deals than June, July and August combined. But as their clocks run out, SPAC sponsors appear to be getting less picky. Parsec Capital Acquisition Corp. raised $86 million a little over a year ago, and its sponsors were looking for a space-themed merger candidate. This week it found a dance partner: Enteractive Media, which makes videos for casinos and gambling websites.
“My prognosis is far from perfect, but my life is perfect.”
— John Mack, a former Morgan Stanley C.E.O., discussing being diagnosed with dementia in his new memoir, “Up Close and All in: Life Lessons From a Wall Street Warrior.” Bloomberg’s review of the book describes it as “a rare opportunity to hear power’s unvarnished internal monologue.”
Biden’s newest crackdown on boards
In the latest expansion of its antitrust powers, the Biden administration successfully pushed directors of several companies to step down, after suggesting that they might be violating a seldom-enforced provision of federal competition law.
Among those who stepped down from a board: Larry Illg, who had served at Udemy; Randall Winn, who had been at Definitive Healthcare; Gordon Hunter, who had been at CTS; and Joanne Isham, who had been at Redwire. Three directors at SolarWinds also resigned.
At issue is the idea of interlocking directorates, where people simultaneously serve on the boards of ostensible competitors. The Justice Department cited Section 8 of the Clayton Act — “an important, but underenforced, part of our antitrust laws,” according to Jonathan Kanter of the department’s antitrust division — as a warning to the executives.
“Competitors sharing officers or directors further concentrates power and creates the opportunity to exchange competitively sensitive information and facilitate coordination — all to the detriment of the economy and the American public,” Kanter added. (None of the companies admitted to liability for breaking the law.)
The move is also a warning shot against private equity, which Kanter has suggested would be an antitrust target for its efforts to roll up companies in various industries. The former directors at SolarWinds represented the buyout firm Thoma Bravo, which still owns a big stake in the company. (While not a private equity firm, Prosus — where Illg is an executive — is a huge tech investor.)
THE SPEED READ
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Correction: An earlier version of this article incorrectly described trillion-dollar corporate valuations. They have 13 digits, not 10.
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