3 - 5 minute read
In recent months, Tesla’s stock has seen a significant drop, leading to speculation about the reasons behind the decline. Some have pointed to the risks associated with investing in the stock, while others have focused on the company’s fundamentals, arguing that the valuation is still too high.
One potential factor contributing to the downturn is the overall market trend. When the risk-free rate on bonds rises, it can lead to a shift in investor behavior, with some opting to sell stocks in favor of bonds. However, others have argued that this alone does not explain the steep drop in Tesla’s stock, with NASDAQ remaining relatively stable while Tesla has seen a 53% decline in just three months.
Another factor that may be driving the decline is the activity of short sellers and those with puts on the stock. When a stock is in a downtrend, it can be profitable to short the stock or hold puts, which can perpetuate the downward trend. This seems to be the case with Tesla, as the stock has seen a solid downtrend in recent months.
Despite the downtrend, it’s important to note that the fundamentals of Tesla remain strong. The company has a significant amount of free cash flow and is investing heavily in the construction of a Mexico gigafactory to manufacture lower-cost vehicles. Additionally, Tesla’s earnings have been growing at a rate of 50% per year, or at least 40% per year.
The Role of Musk and Gerber in the Decline
Recently, Tesla CEO Elon Musk and Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, have been engaged in a public spat on Twitter, which has only added to the uncertainty surrounding the company. Musk has argued that the decline in the stock is due to the overall market trend and the impact of rising bond rates, while Gerber has pointed to other factors, such as the company’s valuation and the influence of short sellers.
It’s worth noting that Musk has a history of making bold predictions and statements that have not always come to fruition, which may have contributed to investor skepticism about his explanations for the decline in Tesla’s stock. However, it’s important to separate the personal drama from the underlying issues impacting the stock.
What to Expect Going Forward
It’s difficult to predict exactly what will happen with Tesla’s stock in the coming weeks and months. The company is set to report earnings in the near future, which could provide some clarity on the state of the business and the direction of the stock. Additionally, the company’s expansion into new markets and the success of its lower-cost vehicles could have a significant impact on the stock’s performance.
In the meantime, it’s important for investors to carefully consider the risks and potential rewards of investing in Tesla. While the fundamentals of the company are strong, the stock’s recent performance suggests that there are significant risks involved. As with any investment, it’s important to do thorough research and carefully weigh the potential risks and rewards before making a decision.