Elon Musk blames Tesla's $600 billion plunge in market value this year on the Fed
Tesla is firing on all cylinders, but rising rates are leading investors to swap out stocks for Treasuries and other safer assets, Musk said.
Elon Musk has blamed the massive drop in Tesla stock this year on the Federal Reserve, arguing the US central bank's interest-rate hikes have made the stock market less appealing to investors. "Tesla is executing better than ever!" Musk tweeted on Friday, in response to a Tesla shareholder who blamed him for the roughly $600 billion decline in Tesla's market capitalization this year. "We don't control the Federal Reserve," the CEO of Tesla, SpaceX and Twitter added. "That is the real problem here. "US inflation has surged to 40-year highs this year, spurring the Fed to hike interest rates from near zero in March to over 4% today in a bid to cool the economy and curb the pace of price increases. Higher rates encourage saving over spending and make borrowing more expensive -- meaning they typically weigh on asset prices. "As the 'risk-free' real rate of return from Treasury Bills approaches the much riskier rate of return from stocks, the value of stocks drop," Musk said. "For example, if T-bills and stocks both had a 10% rate of return, everyone would just buy the former. "Shares of fast-growing companies such as Tesla have been hit especially hard this year, as they're primarily valued based on their future cash flows. Investors find those prospective cash flows less attractive when prices are soaring, they can earn solid and safer returns elsewhere, and a recession is threatening to decimate their wealth.However, Tesla stock has more than halved in price this year for other reasons. Moreover, several Tesla shareholders have voiced concerns that Twitter, which Musk bought for $44 billion in October, has become a costly distraction. The tech billionaire is busy overhauling the social-media company, and has sold about $8 billion of Tesla stock in recent weeks -- most likely to service the billions of dollars in bank loans he used to finance the takeover.Musk has repeatedly blasted the Fed for hiking rates too aggressively this year. "He's also underlined the dangers of debt when rates are rising, and accused the central bank of paying too much attention to historic economic data instead of current conditions.Read more: Here's where to put your money in 2023 with a recession likely closing in, according to Goldman Sachs, JPMorgan, and 9 other Wall Street giants