Tesla (TSLA) stock is officially in freefall. That’s not a sentence you read very often about one of the world’s great growth stocks. Not since June of last year has TSLA stock fallen this far, this fast.
Exactly how far has TSLA fallen? This six-month chart shows how precipitous the drop has been:
After peaking at 383 on June 23, TSLA stock plummeted 19.5% in two weeks. It’s fallen nearly 14% this month alone. Along the way, it has lost its short-lived standing as America’s most valuable automaker by market cap. Not a good trend if you’re a Tesla investor.
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Why the sudden face-plant? A slower time table for production of its new Model 3, billed as its first “affordable” luxury electric car at $35,000 a pop, is part of what’s driving the selling. Company CEO Elon Musk had previously predicted his company would sell 100,000 Model 3s this year. Now it looks like it will produce less than half that amount. Meanwhile, Tesla is also experiencing a significant shortfall in production of its 100-kilowatt battery packs.
Meanwhile, U.S. auto sales in general have slowed, and competition in the electric-car space keeps increasing, with Volvo being the latest well-established traditional auto maker to join the fray, saying last week that it plans to have all its cars be either hybrid or electric by 2019.
Add it all up, and it’s been a rough couple of weeks for Tesla stock. But that’s the short-term view. Let’s step back for a minute and look at the longer view. We can start by taking a closer look at that six-month chart.
You’ll notice that TSLA bottomed around 308, well above the 300 support level it repeatedly tested in May and even further above the 280 resistance the stock couldn’t break through as recently as March. Even with a nearly 20% drop in two weeks, TSLA stock is still up about 47% year to date. Among public companies as valuable as Tesla, only Alibaba (BABA) has surpassed that year-do-date return.
And while slower production of the Model 3 is a short-term problem, especially when matched against Musk’s rather ambitious goals for this year, the cries for supply to catch up to demand is a good thing. Better that than the other way around. Eventually, production will ramp up (it will go from just 30 made this month to 20,000 in December) and Tesla will start meeting demand for the Model 3. Same goes for the battery packs, which already had a much better month of production in June.
And though the timing of Volvo’s announcement helped pile on to Tesla’s bad couple of weeks, competition in the electric-car space is nothing new. Tesla is still by far the biggest producer of battery-powered electric cars.
So, in the grand scheme of things, not a whole lot has changed with Tesla the company. Just Tesla stock. Those kinds of abrupt moves are typical overreactions from investors to a stock that has risen really fast in a short period of time. Eventually, TSLA stock will even itself out.
I’m not saying there’s no need for concern after a 20% drop in two weeks. But it’s way too early to give up on TSLA just yet.
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