Elon Musk could hurt your portfolio

Elon Musk could hurt your portfolio

Dec 21,2023

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

New York CNN  — 

Elon Musk has had an eventful year. Those events could end up hurting your portfolio.

What’s happening: The world’s richest man repeatedly stoked controversy in 2023 by placing himself at the center of a number of scandals.

Musk has had a penchant for involving himself in problematic issues this year: from endorsing – and then apologizing for – blatantly antisemitic tropes on X, to re-platforming conspiracy theorist Alex Jones and telling concerned advertisers (and Disney in particular) on X to go ‘f**k’ themselves.

And he’s suffered for them.

X, nee Twitter, is now projected to bring in significantly less than the $4.5 billion it earned in the year before Musk took over the company.

Musk said in September that ad revenue was down by about 60%. At the DealBook conference in New York City this November, he said that the drop in ad revenue could cause X to fail. That would be a massive collapse: he acquired it for $44 billion last October.

If Musk wants to wipe out $44 billion (equivalent to Bolivia’s GDP), that’s between him and his private investors.

But if Musk’s multitude of controversies start to weigh on the price of Tesla shares, the problem becomes larger.

Tesla, where Musk serves as CEO, is the seventh-largest company by weight in the S&P 500 and has a market value of about $801 billion. The sheer size of the company places it into multiple indexes and ETFs that are tracked by the largest institutional investors in the country. That means that the vast majority of Americans with a 401(k) are invested in the company and his attraction to controversy could end up hurting their retirement savings.

The CEO factor: Tesla shares are up about 106% this year, but have fallen by about 7.5% over the last six months.

It’s difficult to blame that solely on Elon Musk’s public appearances. Earlier this month, Tesla announced a recall of over 2 million cars due to the company’s autopilot function and the company has also reported narrowing profit margins this year.

But Elon does factor into the fall, at least a bit.

Shares of Tesla sank the week that Musk publicly endorsed an antisemitic conspiracy theory on X that’s popular among White supremacists: that Jewish communities push “hatred against Whites.”

Shares also fell about 2% on November 30, the day after Musk cussed out X advertisers.

A research paper by Jauron Gunther Dam at Georgia Southern University tracked Tesla share price with Elon’s tweets and found that a higher frequency of tweets from Musk corresponded with abnormally negative returns for Tesla stock.

Shareholders speak up: A growing number of Tesla investors are publicly expressing their uncertainty over Musk as an effective leader.

Jerry Braakman, president of First American Trust, called on Tesla’s board to send a clear message that Musk went too far with magnifying the antisemitic post to his millions of followers on X.

“I believe in free speech, but there’s no excuse for spreading hatred by a CEO of a public company,” Braakman said in a statement.

A group of progressive Tesla shareholders earlier this year also wrote a letter to the company’s board of directors, asking them to make CEO Elon Musk concentrate more on one of his many jobs, that of running the EV automaker.

In addition to his roles at Tesla and X, Musk also leads SpaceX, the Boring Company, and Neuralink, among others.

The group claimed that Musk is not spending enough time and attention focused on issues facing the company, including increased EV competition from other automakers, and addressing issues important to the group, including allegations of a toxic work environment at Tesla.

Amalgamated Bank, a union-owned bank, as well as Sisters of St. Joseph of Carondelet, United Church Funds, Investor Advocates for Social Justice and the New York City Comptroller’s Office all added their names to the letter. The letter says that the investors signing the letter own $1.5 billion worth of Tesla shares, which represents less than 1% of the company.

There’s more: A poll late last year of 100 CEOs by Yale School of Management found that 79% of the chief executives believed Musk had become detrimental to the value of his companies.

Tesla saw one of the biggest reputation drops this year amongst investors according to a recent Axios Harris Poll on the 100 most visible brands. The company dropped from 11th place in 2022 to 62nd place. Sam Bankman Fried’s FTX was the only other company that suffered a steeper drop.

A shareholder proposal at Tesla’s annual meeting this year asked the board to prepare a report identifying key people – aka Musk – that the company relies on and whose behavior impacts the company’s bottom line.

Still, Musk says he isn’t going anywhere. “It ain’t so,” he said when asked about stepping down at Tesla earlier this year.

2022 had the lowest total unemployment rate ever

2022 marked a sudden surge in the labor market and ushered in the era of quiet quitting and the great resignation.

But new government data released this week shows just how strong the record-breaking job market in 2022 really was: The annual jobless rate for 2022 – known as the “work-experience unemployment rate” – fell to 7.6%, according to the “Work Experience of the Population” report released annually by the Bureau of Labor Statistics.

That’s the lowest yearly unemployment rate ever recorded, reports my colleague Samantha Delouya.

While employment data is released monthly by BLS, this report, which was released Tuesday, provides a snapshot of the labor market for all of 2022.

And while the labor market has cooled off slightly in 2023, it has remained resilient, even as the Federal Reserve hiked interest rates to the highest level in 22 years, hoping to slow demand in an effort to bring down inflation.

The unemployment rate dipped to 3.7% from 3.9% in November, and the US economy added 199,000 jobs, according to the latest monthly data from the BLS.

Ikea facing delays, disruption due to Red Sea attacks

Ikea says it is expecting delays and possible availability constraints for certain products as a result of the ongoing attacks on ships in the Red Sea by Houthi rebels, reports my colleague Catherine Thorbecke.

“The situation in the Suez Canal will result in delays and may cause availability constraints for certain IKEA products,” the Swedish furniture giant’s parent company, Inter IKEA Group, told CNN in a company statement Wednesday.

“We are in close dialogue with our transportation partners to ensure the safety of people working in the IKEA value chain and to take all the necessary precautions to keep them safe,” the statement added. “This is our main priority.”

Ikea’s comments come after other major companies, including oil giant BP and shipping giant Maersk, said they were temporarily suspending their operations in the Red Sea because of the continued attacks on vessels in recent weeks by Houthi rebels.

Yemen’s Iran-backed Houthi militants have said they are striking ships in the Red Sea as revenge against Israel for its ongoing military campaign in Gaza. Over the last month, Houthi rebels have launched at least 100 attacks against a dozen different commercial and merchant vessels in the Red Sea.

The Red Sea is home to one of the most important maritime trade routes in the world, and at least 44 countries have connections to vessels attacked by the Houthi militants.

Matt Egan and Chris Isidore contributed to today’s newsletter.

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