Big Oil makes a comeback as Exxon’s value zooms past Tesla

The largest US oil company, Exxon Mobil, has surpassed electric-vehicle giant Tesla in market value for the first time since 2020 as investors sell high-growth stocks and buy up value stocks in the energy sector.

Exxon shares have soared 75 per cent year-to-date, putting the energy giant on pace for its best ever annual performance, while Tesla’s stock has plummeted roughly 60 per cent over the same period, for its worst annual slump ever.

Broadly, the change in fortunes illustrates how in the face of growing economic and geopolitical uncertainty, investors flocked to businesses with strong cash flow this year, ditching riskier assets whose valuations are pinned to future growth prospects.

Tesla’s own troubles have contributed heavily to the decline as well. Chief executive officer Elon Musk’s preoccupation with his acquisition of Twitter and his propensity for controversial Tweets are making investors nervous about his focus and potential damage to the Tesla brand.

The maker of electric cars — which are still relatively more expensive than gas-fuelled ones — is expected to see the demand for its vehicles take a hit as consumers postpone or even cancel big-ticket purchases amid a slowing economy, high inflation and rising interest rates.

“In the first part of the year the divergence was caused by a shift away from growth into value,” said Ivana Delevska, chief investment officer at SPEAR Invest. “Now we have a fundamental problem where consumer preference is not shifting to EVs at the rate that was previously expected.”

Exxon is reclaiming its title as “the poster child of buybacks” having spent $US10.6 billion repurchasing its shares in the 12-months ended September 2022, up from just $US100 million in the preceding year,

For its part, Exxon’s equity value has been steadily climbing since hitting a two-decade low in early 2020, when the outset of the COVID-19 pandemic sent crude prices into a tailspin. Since that time, rising crude prices have helped the US oil producer steadily climb back up the ranks of the most valuable companies in the S&P 500, surpassing Facebook parent Meta in September and now Tesla.

The company’s stock set record highs along the way as it aggressively bought its own shares.