Pedestrians walk past the Tesla Motors official authorized car dealer store in Hong Kong.
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Is the first electric-vehicle recession here, or coming soon?
As electric-car stocks plummeted in late 2022, the rout evoked comparisons to the dot-com stock bust two decades ago. Like the internet industry then, the EV industry boasts companies, notably Tesla, that look like long-term winners, but it is also made up of young companies that may not have the cash to ride out a downturn, as well as in-between players like Lucid Group, Fisker and Rivian Automotive, that have done their best to prepare, and whose fate may depend on how bad things get.
With the economy at an inflection point between receding inflation fears and broad expectation of a recession beginning in 2023, the market doesn’t know what to make of moves like Tesla’s big price cuts, first in China and then on Jan. 13, in the U.S. and Europe. Analysts like Guggenheim Securities’ Ronald Jesikow said it could push Tesla’s profit margins 25% lower than Wall Street consensus and drain profits from all of Tesla’s competitors. But optimists like Wedbush analyst Dan Ives think it’s the right, aggressive move to jumpstart the EV transition amid macro uncertainty.
“Many dot-coms didn’t make it,” Ives said. “There’s no stress test for a severe recession for an industry that’s in its infancy.”
What happens next — whether battered EV stocks rebound, whether young companies that need more funding will be able to get it, and whether the sector becomes the jobs engine Washington was counting on when it passed the Inflation Reduction Act last summer, laden with tax credits for EVs — depends on the economy first, and the markets second.
The “first EV recession” theme comes with a big if – that there is a recession in the first place, either here or in China, where Tesla sales dropped 44 percent in December from November levels as the government there continued struggling to contain Covid-19.
In the U.S., most economists and CEOs think a recession is likely this year, though the market gains of the last week may reflect the beginnings of a change in the investor outlook, with more believing in the “soft landing” narrative for the economy. One holdout, Moody’s Analytics chief economist Mark Zandi, forecasts a months-long “slowcession” where growth doesn’t quite turn negative. Either scenario would likely hurt car sales in general, which were the worst in a decade in the U.S. last year, but where some auto executives are now slightly more confident about a rebound, though the EV outlook among the automakers has become more cautious in the short-term. But either scenario may be too pessimistic if the economy responds positively to now-slowing inflation.
The outlook from China, home to more than half of the world’s EV sales, according to Clean Technica, is at least as murky. Manufacturing moved into negative-growth territory late in the year and housing prices are falling, but the International Monetary Fund says China will avoid a recession and grow its economy by 3.8% this year. That would be half of 2021’s clip and slightly below China’s pace last summer, when the nation began to cope with new Covid-related shutdowns. China is now pushing to reopen its economy amid the pandemic.
Tesla’s 2023 world is like Amazon and eBay’s 2000
A recession, if it happens, doesn’t necessarily mean EV sales will fall. Most models saw big sales gains last year in both the U.S. and Asia. It’s more a question of whether EV companies will grow fast enough to keep adding jobs, and for companies beyond Tesla to turn profitable when investors expect them to — or before they run out of cash they raised to fund startup losses.
That sets up a dynamic a lot like the one that confronted dot-com companies like Amazon and eBay as 2000 blended into 2001: A web-stock selloff was well-underway then, just as EV companies like Tesla, Fisker and Lucid fell sharply last year — 65 percent for Tesla, 54 percent for Fisker and 82 percent for Lucid. Then as now, weaker players like today’s EV makers Lordstown Motors, Faraday Future and Canoo were scrambling to avoid running out of cash as an economic slowdown loomed, either by cutting costs or raising more money from investors.
“We look at a combination of balance sheet stability and ability to raise more capital,” said Greg Bissuk, CEO of AXS Investments in New York, which runs an exchange-traded fund that uses swaps to deliver the opposite of Tesla’s daily return — in essence, usually a near-term bet that the shares will drop. “We think it will be rocky,” he said, specifically referring to the middle-tier EV makers.
For EV makers, the likely impact of a recession is slower growth, but not the negative growth the overall economy experiences in a downturn, as new technology keeps gaining market share.
The best-positioned EV maker is still Tesla, said CFRA Research analyst Garrett Nelson. With the company still expected to have generated about $4 billion in late-2022 cash flow when it reports fourth-quarter earnings Jan. 25, and having had about $21 billion at the end of the third quarter, it’s not in danger of a cash burn, Ives said.
“We think the stock rebounds quickly this year,” Nelson said, calling Tesla his top pick among all auto makers, and noting that CFRA economists don’t expect a recession. It trades at 24 times this year’s profit estimates, which in turn only call for 25% profit growth, numbers that are modest for a growth company with room to keep expanding fast.
After the price cut, Nelson said the company will see narrower profit margin but will sell more cars.
“It should widen the company’s competitive advantage and make many more Tesla vehicles eligible for the $7,500 federal EV tax credit,” Nelson said.
The just-enacted price cut pulled the most-popular Model Y vehicles under the price maximum for tax-credit eligibility in the 2022 Inflation Reduction Act.
Tesla has its own issues, with sales growth having slowed late in the year. Fourth-quarter units were up 32%, down sharply from earlier in the year, missing Wall Street estimates for a second straight quarter. CEO Elon Musk’s antics as the new lead owner of Twitter raise concerns about how closely Musk is watching the store, and how quickly he may respond if Tesla’s decline accelerates, Ives said.
“The biggest [issue] is Twitter,” Nelson said.
On the plus side, this year’s earnings estimates assume no contribution from the Cybertruck, which Tesla is again promising to launch late this year, after being delayed since 2021. And Goldman Sachs analyst Mark Delaney wrote Jan. 2 that vehicle deliveries should reaccelerate by midyear, helped by lower cost structures at Tesla’s newer factories and a pickup in Chinese sales.
“Now is a time for leadership from Musk to lead Tesla through this period of softer demand in a darker macro, and not the time to be hands off, which is the perception of the Street,” Ives said. “This is a fork-in-the-road year for Tesla, where it will either lay the groundwork for its next chapter of growth or continue its slide.”
Cash burn and the rest of the EV market
In the middle, Lucid, Rivian and Fisker make up a range of higher-risk possibilities that may well turn out fine in the end. But Tesla’s price cutting may cause them problems: Fisker’s stock dropped almost 10% on its rival’s announcement, since Tesla’s move puts the Model Y’s price closer to that of the Fisker Ocean, whose middle tier is around $50,000.
Of the three, Rivian has the most cash on hand, with short-term investments at $13.3 billion as of the end of the third quarter. Fisker had $829 million, and Lucid had $3.85 billion.
Each company is still burning cash, posing the question of whether they have enough to survive a downturn. Fisker lost about $480 million in cash flow in the 12 months ending in September, and invested another $220 million, meaning its cash would last between one and two years if its losses and investment didn’t slow.
“Our commitment to a lean business model has given us a solid balance sheet, which we have supported with disciplined management of our cash,” CEO Henrik Fisker said in a statement to CNBC. “We are in good shape to manage future economic challenges and to act on opportunities.”
Lucid spent over $2 billion in the first nine months of 2022 on operating cash flow losses and capital investment, and says its cash will cover its plans “at least into the fourth quarter of 2023,” according to its third-quarter earnings call. Lucid’s recent production and delivery numbers did beat expectations, albeit expectations that had already been lowered.
Rivian’s stockpile is more than two years’ worth of recent cash-flow losses and investment.
All three companies, which declined or didn’t respond to on-the-record interview requests, can also extend their cash runway by raising more capital and, indeed, at least two of them have already begun to do so. Lucid raised another $1.515 billion in December, mostly from Saudi Arabia’s Public Investment Fund, whileFisker has filed to raise $2 billion from an ongoing shelf registration at the Securities and Exchange Commission and has so far raised $116 million.
All three should also give financial guidance for 2023 during earnings season, including updates on their capital spending, and on whether cash-flow losses will narrow as they begin to ship more vehicles.
Fisker began shipping its initial model, the Fisker Ocean, only in mid-November, and plans to ship a less-expensive SUV called the Fisker PEAR next year. Rivian, hampered by parts shortages due to Covid-driven supply chain issues, missed its 2022 production target of 25,000 vehicles by less than 700. It hasn’t yet said how many cars it will ship this year. Rivian also paused a partnership with Mercedes in November, ending for now a plan to co-develop commercial vehicles. Rivian said it would concentrate on its consumer business and other commercial ventures, primarily a deal to sell delivery vans to Amazon, that offer better risk-adjusted returns. That move will help avoid pressure on the startup’s capital base.
Business plans for the future, little current business
Lower on the food chain are companies like Faraday Future Intelligent Electric, Canoo and Lordstown Motors, which went public via mergers with Special Purpose Acquisition Companies, or SPACs, and have lost most of their equity value since.
Lordstown in November announced a fresh investment by Foxconn, the contract manufacturer that will own 19.9% of Lordstown after the deal, including preferred stock, to help scale up production of its initial pickup truck and bolster the $204 million in cash on its balance sheet. Foxconn has agreed to make Fisker vehicles in Lordstown’s Ohio factory, which Foxconn bought in May, for launch in 2024. It issued a going-concern warning in 2021, before raising money from Foxconn.
“The new capital from Foxconn doesn’t change our focus” on cost containment, Lordstown CFO Adam Kroll said, arguing that the Foxconn deal will slash Lordstown’s capital needs. “We continue to execute a playbook of prudence and discipline.”
Companies like Faraday, Canoo and Lordstown that need to raise more capital could find the path blocked by a more-skeptical capital market than the one that financed them during the special-purpose acquisition company boom, CFRA’s Nelson said. Weaker players include Electro Mechanica, which has proposed a solo EV but hasn’t shipped it in scale yet, British commercial-vehicle maker Arrival, and Green Power Motor, a Canadian electric bus maker, he said. He even includes Fisker, Lucid and Rivian among those at risk from tighter markets.
“They had a business plan but no business, and they got absurd amounts of capital,” Nelson said. “In our opinion, you’ll see many additional bankruptcies, but the market will return to balance. But it’s hard to imagine we’ve seen the bottom.”
But Nelson does believe the electric car boom is for real — indeed, he says Tesla is the year’s best bet in the overall auto industry. A note of skepticism: After the dot-com boom and bust, Amazon.com began rising off its lows in 2002, rising tenfold by 2008, but didn’t leave its 1999 highs behind for good until 2010. EBay recovered faster but couldn’t sustain its momentum.
Ives said the Inflation Reduction Act, which offers tax credits of $7,500 for electric cars costing less than $55,000 and SUVs or pickups selling for $80,000 or less, may throw the industry a lifeline as companies arrange to do enough domestic manufacturing to qualify all of their vehicles. Arrival, citing IRA credits of up to $40,000 for buyers of commercial vehicles, said in November that it is refocusing its London-based company on the U.S. market.
“The pressure in 2023 is less about EVs than the overall macro environment,” Ives said. “The IRA is not a small point.”
That’s not lost even on Bassuk, who emphasizes that his fund is about helping exploit short-term weakness in the market’s view of EVs. Long-term, he says, EVs are coming, recession or not.
“Those with the capital to get through 2023, we’d bet the farm on,” he said.
CNBC is now accepting nominations for the 2023 Disruptor 50 list – our 11th annual look at the most innovative venture-backed companies. Learn more about eligibility and how to submit an application by Friday, Feb. 17.
Elon Musk’s business empire is sprawling. It includes electric vehicle maker Tesla, social media company X, artificial intelligence startup xAI, computer interface company Neuralink, tunneling venture Boring Company and aerospace firm SpaceX.
Some of his ventures already benefit tremendously from federal contracts. SpaceX has received more than $19 billion from contracts with the federal government, according to research from FedScout. Under a second Trump presidency, more lucrative contracts could come its way. SpaceX is on track to take in billions of dollars annually from prime contracts with the federal government for years to come, according to FedScout CEO Geoff Orazem.
Musk, who has frequently blamed the government for stifling innovation, could also push for less regulation of his businesses. Earlier this month, Musk and former Republican presidential candidate Vivek Ramaswamy were tapped by Trump to lead a government efficiency group called the Department of Government Efficiency, or DOGE.
In a recent commentary piece in the Wall Street Journal, Musk and Ramaswamy wrote that DOGE will “pursue three major kinds of reform: regulatory rescissions, administrative reductions and cost savings.” They went on to say that many existing federal regulations were never passed by Congress and should therefore be nullified, which President-elect Trump could accomplish through executive action. Musk and Ramaswamy also championed the large-scale auditing of agencies, calling out the Pentagon for failing its seventh consecutive audit.
“The number one way Elon Musk and his companies would benefit from a Trump administration is through deregulation and defanging, you know, giving fewer resources to federal agencies tasked with oversight of him and his businesses,” says CNBC technology reporter Lora Kolodny.
To learn how else Elon Musk and his companies may benefit from having the ear of the president-elect watch the video.
Elon Musk attends the America First Policy Institute gala at Mar-A-Lago in Palm Beach, Florida, Nov. 14, 2024.
Carlos Barria | Reuters
X’s new terms of service, which took effect Nov. 15, are driving some users off Elon Musk’s microblogging platform.
The new terms include expansive permissions requiring users to allow the company to use their data to train X’s artificial intelligence models while also making users liable for as much as $15,000 in damages if they use the platform too much.
The terms are prompting some longtime users of the service, both celebrities and everyday people, to post that they are taking their content to other platforms.
“With the recent and upcoming changes to the terms of service — and the return of volatile figures — I find myself at a crossroads, facing a direction I can no longer fully support,” actress Gabrielle Union posted on X the same day the new terms took effect, while announcing she would be leaving the platform.
“I’m going to start winding down my Twitter account,” a user with the handle @mplsFietser said in a post. “The changes to the terms of service are the final nail in the coffin for me.”
It’s unclear just how many users have left X due specifically to the company’s new terms of service, but since the start of November, many social media users have flocked to Bluesky, a microblogging startup whose origins stem from Twitter, the former name for X. Some users with new Bluesky accounts have posted that they moved to the service due to Musk and his support for President-elect Donald Trump.
Bluesky’s U.S. mobile app downloads have skyrocketed 651% since the start of November, according to estimates from Sensor Tower. In the same period, X and Meta’s Threads are up 20% and 42%, respectively.
X and Threads have much larger monthly user bases. Although Musk said in May that X has 600 million monthly users, market intelligence firm Sensor Tower estimates X had 318 million monthly users as of October. That same month, Meta said Threads had nearly 275 million monthly users. Bluesky told CNBC on Thursday it had reached 21 million total users this week.
Here are some of the noteworthy changes in X’s new service terms and how they compare with those of rivals Bluesky and Threads.
Artificial intelligence training
X has come under heightened scrutiny because of its new terms, which say that any content on the service can be used royalty-free to train the company’s artificial intelligence large language models, including its Grok chatbot.
“You agree that this license includes the right for us to (i) provide, promote, and improve the Services, including, for example, for use with and training of our machine learning and artificial intelligence models, whether generative or another type,” X’s terms say.
Additionally, any “user interactions, inputs and results” shared with Grok can be used for what it calls “training and fine-tuning purposes,” according to the Grok section of the X app and website. This specific function, though, can be turned off manually.
X’s terms do not specify whether users’ private messages can be used to train its AI models, and the company did not respond to a request for comment.
“You should only provide Content that you are comfortable sharing with others,” read a portion of X’s terms of service agreement.
Though X’s new terms may be expansive, Meta’s policies aren’t that different.
The maker of Threads uses “information shared on Meta’s Products and services” to get its training data, according to the company’s Privacy Center. This includes “posts or photos and their captions.” There is also no direct way for users outside of the European Union to opt out of Meta’s AI training. Meta keeps training data “for as long as we need it on a case-by-case basis to ensure an AI model is operating appropriately, safely and efficiently,” according to its Privacy Center.
Under Meta’s policy, private messages with friends or family aren’t used to train AI unless one of the users in a chat chooses to share it with the models, which can include Meta AI and AI Studio.
Bluesky, which has seen a user growth surge since Election Day, doesn’t do any generative AI training.
“We do not use any of your content to train generative AI, and have no intention of doing so,” Bluesky said in a post on its platform Friday, confirming the same to CNBC as well.
Liquidated damages
Another unusual aspect of X’s new terms is its “liquidated damages” clause. The terms state that if users request, view or access more than 1 million posts – including replies, videos, images and others – in any 24-hour period they are liable for damages of $15,000.
While most individual users won’t easily approach that threshold, the clause is concerning for some, including digital researchers. They rely on the analysis of larger numbers of public posts from services like X to do their work.
X’s new terms of service are a “disturbing move that the company should reverse,” said Alex Abdo, litigation director for the Knight First Amendment Institute at Columbia University, in an October statement.
“The public relies on journalists and researchers to understand whether and how the platforms are shaping public discourse, affecting our elections, and warping our relationships,” Abdo wrote. “One effect of X Corp.’s new terms of service will be to stifle that research when we need it most.”
Neither Threads nor Bluesky have anything similar to X’s liquidated damages clause.
Meta and X did not respond to requests for comment.
A recent Chinese cyber-espionage attack inside the nation’s major telecom networks that may have reached as high as the communications of President-elect Donald Trump and Vice President-elect J.D. Vance was designated this week by one U.S. senator as “far and away the most serious telecom hack in our history.”
The U.S. has yet to figure out the full scope of what China accomplished, and whether or not its spies are still inside U.S. communication networks.
“The barn door is still wide open, or mostly open,” Senator Mark Warner of Virginia and chairman of the Senate Intelligence Committee told the New York Times on Thursday.
The revelations highlight the rising cyberthreats tied to geopolitics and nation-state actor rivals of the U.S., but inside the federal government, there’s disagreement on how to fight back, with some advocates calling for the creation of an independent federal U.S. Cyber Force. In September, the Department of Defense formally appealed to Congress, urging lawmakers to reject that approach.
Among one of the most prominent voices advocating for the new branch is the Foundation for Defense of Democracies, a national security think tank, but the issue extends far beyond any single group. In June, defense committees in both the House and Senate approved measures calling for independent evaluations of the feasibility to create a separate cyber branch, as part of the annual defense policy deliberations.
Drawing on insights from more than 75 active-duty and retired military officers experienced in cyber operations, the FDD’s 40-page report highlights what it says are chronic structural issues within the U.S. Cyber Command (CYBERCOM), including fragmented recruitment and training practices across the Army, Navy, Air Force, and Marines.
“America’s cyber force generation system is clearly broken,” the FDD wrote, citing comments made in 2023 by then-leader of U.S. Cyber Command, Army General Paul Nakasone, who took over the role in 2018 and described current U.S. military cyber organization as unsustainable: “All options are on the table, except the status quo,” Nakasone had said.
Concern with Congress and a changing White House
The FDD analysis points to “deep concerns” that have existed within Congress for a decade — among members of both parties — about the military being able to staff up to successfully defend cyberspace. Talent shortages, inconsistent training, and misaligned missions, are undermining CYBERCOM’s capacity to respond effectively to complex cyber threats, it says. Creating a dedicated branch, proponents argue, would better position the U.S. in cyberspace. The Pentagon, however, warns that such a move could disrupt coordination, increase fragmentation, and ultimately weaken U.S. cyber readiness.
As the Pentagon doubles down on its resistance to establishment of a separate U.S. Cyber Force, the incoming Trump administration could play a significant role in shaping whether America leans toward a centralized cyber strategy or reinforces the current integrated framework that emphasizes cross-branch coordination.
Known for his assertive national security measures, Trump’s 2018 National Cyber Strategy emphasized embedding cyber capabilities across all elements of national power and focusing on cross-departmental coordination and public-private partnerships rather than creating a standalone cyber entity. At that time, the Trump’s administration emphasized centralizing civilian cybersecurity efforts under the Department of Homeland Security while tasking the Department of Defense with addressing more complex, defense-specific cyber threats. Trump’s pick for Secretary of Homeland Security, South Dakota Governor Kristi Noem, has talked up her, and her state’s, focus on cybersecurity.
Former Trump officials believe that a second Trump administration will take an aggressive stance on national security, fill gaps at the Energy Department, and reduce regulatory burdens on the private sector. They anticipate a stronger focus on offensive cyber operations, tailored threat vulnerability protection, and greater coordination between state and local governments. Changes will be coming at the top of the Cybersecurity and Infrastructure Security Agency, which was created during Trump’s first term and where current director Jen Easterly has announced she will leave once Trump is inaugurated.
Cyber Command 2.0 and the U.S. military
John Cohen, executive director of the Program for Countering Hybrid Threats at the Center for Internet Security, is among those who share the Pentagon’s concerns. “We can no longer afford to operate in stovepipes,” Cohen said, warning that a separate cyber branch could worsen existing silos and further isolate cyber operations from other critical military efforts.
Cohen emphasized that adversaries like China and Russia employ cyber tactics as part of broader, integrated strategies that include economic, physical, and psychological components. To counter such threats, he argued, the U.S. needs a cohesive approach across its military branches. “Confronting that requires our military to adapt to the changing battlespace in a consistent way,” he said.
In 2018, CYBERCOM certified its Cyber Mission Force teams as fully staffed, but concerns have been expressed by the FDD and others that personnel were shifted between teams to meet staffing goals — a move they say masked deeper structural problems. Nakasone has called for a CYBERCOM 2.0, saying in comments early this year “How do we think about training differently? How do we think about personnel differently?” and adding that a major issue has been the approach to military staffing within the command.
Austin Berglas, a former head of the FBI’s cyber program in New York who worked on consolidation efforts inside the Bureau, believes a separate cyber force could enhance U.S. capabilities by centralizing resources and priorities. “When I first took over the [FBI] cyber program … the assets were scattered,” said Berglas, who is now the global head of professional services at supply chain cyber defense company BlueVoyant. Centralization brought focus and efficiency to the FBI’s cyber efforts, he said, and it’s a model he believes would benefit the military’s cyber efforts as well. “Cyber is a different beast,” Berglas said, emphasizing the need for specialized training, advancement, and resource allocation that isn’t diluted by competing military priorities.
Berglas also pointed to the ongoing “cyber arms race” with adversaries like China, Russia, Iran, and North Korea. He warned that without a dedicated force, the U.S. risks falling behind as these nations expand their offensive cyber capabilities and exploit vulnerabilities across critical infrastructure.
Nakasone said in his comments earlier this year that a lot has changed since 2013 when U.S. Cyber Command began building out its Cyber Mission Force to combat issues like counterterrorism and financial cybercrime coming from Iran. “Completely different world in which we live in today,” he said, citing the threats from China and Russia.
Brandon Wales, a former executive director of the CISA, said there is the need to bolster U.S. cyber capabilities, but he cautions against major structural changes during a period of heightened global threats.
“A reorganization of this scale is obviously going to be disruptive and will take time,” said Wales, who is now vice president of cybersecurity strategy at SentinelOne.
He cited China’s preparations for a potential conflict over Taiwan as a reason the U.S. military needs to maintain readiness. Rather than creating a new branch, Wales supports initiatives like Cyber Command 2.0 and its aim to enhance coordination and capabilities within the existing structure. “Large reorganizations should always be the last resort because of how disruptive they are,” he said.
Wales says it’s important to ensure any structural changes do not undermine integration across military branches and recognize that coordination across existing branches is critical to addressing the complex, multidomain threats posed by U.S. adversaries. “You should not always assume that centralization solves all of your problems,” he said. “We need to enhance our capabilities, both defensively and offensively. This isn’t about one solution; it’s about ensuring we can quickly see, stop, disrupt, and prevent threats from hitting our critical infrastructure and systems,” he added.