Fall Guy: Tesla Stock Dives as Storm Clouds Rain on Musk's Parade

If Tesla stock was an airplane, it would have left Earth’s atmosphere sometime this spring. By June, that aircraft — let’s call it the Model P — would have been within striking distance of Mars. Indeed, Tesla investors made out like bandits as the company’s shares soared and its market cap sailed past that of Ford and General Motors, making it the most valuable domestic automaker.

For a while, it seemed nothing could stop Tesla’s meteoric rise. Not labor strife, not worries about the Model 3’s production timeline, not a cracked A-pillar on a freshly delivered Model S, not Model X doors trapping people inside a burning vehicle, not allegations of subpar working conditions, nothing. Tesla may as well have tried buying the rights to the word Teflon.

Well, CEO Elon Musk said it best himself in May. The company’s market valuation was “higher than we have any right to deserve,” he told The Guardian, a month before Tesla shares rose to a record $383.45. As the saying goes, “What goes up…”

This weekend brought bad news for the company and its investors, masked with a tasty bit of fare for brand loyalists and Musk’s cadre of rabid superfans. Model 3 production, Musk tweeted, would commence late last week, two weeks ahead of schedule. Joy. Merriment. Bliss.

However, the long holiday weekend also brought dark clouds to Tesla’s sunny skies. Second-quarter production fell compared to Q1, with just over 22,000 Model S and X vehicles rolling out of Fremont — considerably less than the nearly 26,000 produced in 2017’s first quarter. The company blames a temporary, but severe, shortfall in 100 kWh battery packs.

Also this week, Tesla’s Model S failed to achieve a coveted Top Safety Pick+ rating from the Insurance Institute for Highway Safety, pushing it out of the top echelon of safe large sedans. Meanwhile, Volvo doubled down on its electrification promises, declaring that all new vehicles would contain some measure of electric propulsion from 2019 onwards.

The news had an immediate impact on Tesla’s stock. From its late-June high, share prices fell as low as $306.70 yesterday, 2o percent below the recent peak and flirting with bear market territory. At last count, Tesla shares have rebounded just over 4 percent in Friday trading. However, its market cap of $48.53 billion now sits firmly below that of GM’s ($52.52 billion), which it surpassed back in April.

Analysts began predicting a correction months ago, so it isn’t all that surprising to see Tesla’s stock hit a speedbump. As the Model 3 hits production, investors should expect a bumpy ride. Goldman Sachs analyst David Tamberrino tells MarketWatch that plateauing demand for Model S and X vehicles, as well as the cost of building an ever-increasing amount of lower-priced Model 3s, should impact the profit margins of a company not used to being in the black.

[Image: Tesla]