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Tesla vs Exxon: Fossil fuels hit back at green revolution as XOM market cap overtakes TSLA

By Jenal Mehta

12:45, 21 December 2022

tesla electric pump
Oil companies surpass tech stocks – Photo: Getty Images

Tesla's (TSLA) market capitalisation surpassed that of Exxon Mobil (XOM) for the first time since 2020 as price correction and sector rotation came into play as the stock market once again becomes wary of a recession.

Tesla’s shares peaked in November 2021 after growing almost 200% in value since 2019. It has been on a decline since, losing more than two thirds of that gain.

One of the major reasons for this downward push is likely coming from the erratic behaviour of the EV maker’s CEO Elon Musk.

A bigger trend of sector rotation is also at play, with investors moving away from growth stocks such as Tesla and moving towards value stocks such as Exxon Mobil (XOM) as recession fears deepen. Analysts say this could be a major theme of 2023.

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Tesla (TSLA) Price Chart 

Why is Tesla stock falling?

One of the biggest setbacks for Tesla share price has been its own CEO and his capricious behaviour. Elon Musk has partly funded his $44bn buy out of Twitter with his private money. He has sold $22bn worth of TSLA stock since he made his offer for Twitter.

However, it’s the very same maverick nature of Musk which may be the reason behind why Tesla is trading at a premium compared to its peers. Tesla’s P/E sits at around 38, even reaching a peak of 60 in 2022. While competing EV makers such as Rivian (RVIN) and Lucid (LCID) have a p/e of less than 3.

Even other car makers such as Ford (F) and Volkswagen (VOW3) maintain a p/e of around 3 to 6.

Markets may be realising this overvaluation as Musk’s behaviour begins to sit uncomfortably. His stepping down from Twitter may now be a saving grace for Tesla shareholders.

Danni Hewson, AJ Bell Financial Analyst says: “Mr Musk’s split focus is troubling, especially at a time when expectations are that Tesla’s next set of financial results won’t look too pretty.”

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Ford (F) Price Chart

Market moves away from growth stocks

Beyond the stock specific reasons for Tesla price falling, the trends in the broader market suggest the downward push is coming from investors moving away from growth stocks such as Tesla, and moving towards value stocks such as Exxon and other commodity companies.

A number of growth stocks gained tremendous momentum at the start of the year just as commodity stocks came down from a historic high.

In 2020, commodity companies, particularly oil majors such as Exxon Mobil (XOM), BP (BP), Shell (RDS), saw a historically high income. While growth companies struggled.

However it would only be less than two years before growth companies would rebound. During the beginning of 2022, stocks of Alphabet (GOOG), Microsoft (MSFT), Tesla (TSLA) soared. Apple (AAPL) even briefly crossed a historic $1trn valuation.

This was an indication that the market had relaxed out of recessionary fears.

Now the market appears to be in fear again and returning to the trends of 2020, and analysts believe this is likely to carry on into 2023

Daniel Grosvenor, director of global equity strategy at Oxford Economics comments: “We believe growth stocks will continue to underperform against this macro backdrop. Growth valuations remain elevated versus historic norms, and we believe that the growth universe is relatively vulnerable to the coming downturn due to its sector tilts.”

As Musk said in a tweet: “Tesla will be great long-term, but doesn’t control macroeconomic tides.”

Markets in this article

GOOG
Alphabet Inc - C (Extended Hours)
183.37 USD
-2.16 -1.170%
GOOGL
Alphabet Inc - A (Extended Hours)
181.73 USD
-1.88 -1.020%
AAPL
Apple Inc (Extended Hours)
229.71 USD
-5.47 -2.330%
BP.
BP - GBP
4.540 USD
0.058 +1.300%
XOM
Exxon Mobil Corp (Extended Hours)
117.78 USD
1.31 +1.130%

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