Tesla has been talk of the town over the last couple months with being the hottest stock around, however, it took a tumble on this week by falling 6% on Tuesday after it closed down 8.5% on Monday.
Shares fell to $619 Tuesday, and its the first time Tesla has had such a dramatic since joining the S&P 500 index in December. It also knocked Tesla CEO, Elon Musk down a notch into second place of being the world’s richest person. Last year, Musk overtook Bezos to reach prime position but after Tesla’s big dip, he’s back behind the Amazon founder.
There are a few guesses around why Tesla is seeing a stock bump:
Bitcoin
Earlier this month, Tesla announced its $1.5 billion investment in Bitcoin, which helped Bitcoin shares and gave the US car maker the opportunity to earn a quick $1 billion profit.
However, Musk expressed his views about Bitcoin’s high share price on Twitter, which then saw the price of bitcoin (XBT) down 9.3% on Monday. The knock-on effect was dragging Tesla shares down too.
Model Y pricing
Last week, Tesla made some price adjustments by lowering the starting cost of the Model Y and Model 3. Surprisingly, the Model Y then disappeared from Tesla’s website. Maybe the price cut wasn’t such a good idea and would negatively affect their profit margin OR there’s a problem with demand. However, Musk took to Twitter and explained the Model Y web absence:
"It is still available off menu, but I don’t think the range, in many drive conditions, yet meets the Tesla standard of excellence"
Increased competition
There’s been a lot of activity from rival EV automakers launching new products such as General Motors (GM) rolling out its Chevy Bolt models well below Tesla’s starting prices. VW has recently shown its plug-in EV has surpassed Tesla sales too. Perhaps Tesla investors and market analysts react too quickly because as global demand for transport electrification increases, there is enough of the pie to go around – as we’ve seen with gas-powered vehicles, there can be multiple winners in the automobile industry.
Investors’ Reactions
Tesla’s Q4 2020 earnings showed that the profits Tesla made from the sale of regulatory credits to other automakers surpassed its overall net income. Critics have said that it is the Californian automaker isn’t making profit through its primary business, which is making and selling all-electric vehicles.
During the earnings conference call on January 27, Elon Musk spoke about a shortage of batteries needed to power electric vehicles and said that his company planned expansion of battery production, however the company is scrambling to find the batteries it wants to build more vehicles.
The Tesla boss said, "The fundamental limit on electric vehicles right now, in general, is total availability of battery cells.”
Musk even wants to produce an electric semi-tractor but does not have the batteries available to do so.
It’s not all Bad News
Tesla shares rose a market-leading 743% in 2020, as investors embraced the idea that the future of the auto industry would be electric. Tesla remains by far the most valuable automaker in the world, with a market value well above that of the eight largest automakers combined. Even with the recent decline.
Tesla shares are up about 1,300% since October 2019, when it reported a third-quarter profit that surprised investors, sending shares on a tear.
Some investors believe Tesla's stock flew too high. Yet many analysts believe Tesla will bounce back and they predict that we may even see a share price of $950 in the next few months.
