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Will Tesla Stock Keep Dropping?

Plus500 | Tuesday 14 December 2021

Tesla shares took a tumble on Monday, taking the company’s valuation under the $1 trillion mark. After Elon Musk made headlines with controversial remarks yet again, traders may be wondering in which direction Tesla stock might be heading.

Tesla

Tesla’s Big Drop in Stock Price

Tesla’s (TSLA) stock value took a tumble of over 5% over the course of the trading day Monday. This marked the electric vehicle manufacturer’s lowest closing price since October 22nd, and a fall of over 21% since November 4th’s record close. Now that Tesla’s officially entered bear territory, defined as a 20% or more drop from a peak price, some investors may be wondering whether this week’s fall is temporary, or rather, bodes ill for the future.

This is Tesla’s third time entering a bear market this year, but its first since reaching the $1 trillion valuation milestone in October. Tesla stock dropped by 6% last Thursday, on the heels of safety concerns related to its vehicles’ Autopilot navigation system, but it took Monday’s hit for the EV giant to officially leave the realm of ten figures. After such a dramatic fall, it’s important to consider the potential causative factors.

tesla chart

Is Tesla’s Stock Overvalued?

Some market watchers are chalking Tesla’s tumble up to its stock’s high valuation. According to conventional market wisdom, when a company’s share price rises far above its longer-term average, a greater level of volatility comes into play, and its shares can drop just as precipitously as they rose. Some analysts have even named Tesla the ‘most stretched’ among mega cap stocks, given that its shares were trading at over triple their 200-week moving average early last month. One veteran financial analyst estimates that Tesla would have to sell over 30 million vehicles by 2030 to justify a trillion-dollar valuation; in comparison, Tesla delivered under a quarter-million EV’s over the third quarter of 2021.

CEO Selloff?

Another potential cause of Monday’s drop is Tesla’s CEO Elon Musk himself. Anticipation that Musk could move to sell off millions of dollars worth of Tesla stock grew in early November after he posed a controversial question to his followers on Twitter in the form of a poll. Given that such a large-volume sale of shares could be more heavily taxed in 2022, due to regulation changes proposed by the Biden administration, Elon Musk surveyed his followers’ opinions as to whether he should sell 10% of his Tesla holdings before the end of 2021.

According to SEC filings published on Monday, Musk sold over $900 million worth of Tesla stock, avoiding a whopping $3-4 billion in government taxes, should the proposed changes to taxes on capital gains be implemented in 2022. With a large quantity of Tesla shares released to the market, Tesla’s stock value was pushed down. 

Furthermore, Musk still needs to exercise the millions of dollars worth of Tesla stock options available to him before August of next year. In September, he indicated that further Tesla share selloffs could be in store for 2022 after these options are exercised. (source: tesla.com)

Is Bitcoin a Bad Influence?

Still others are attributing Monday’s fall to the concurrent decline in Bitcoin’s price. Tesla holds over 42,000 Bitcoins; although this sum may pale in comparison to the firm’s $16 billion in cash and its equivalents, a fall in the value of Bitcoin still affects Tesla’s bottom line.

Bitcoin (BTCUSD) dropped 6.7% on Monday, and as of Tuesday morning was trading at just above $47,000. Some believe that the downturn in the premiere digital currency’s fortunes could be because a greater proportion of coins are held by short-term traders. However, Bitcoin dropped after Elon Musk himself cast doubt on its viability as a replacement currency on Monday.

In his interview with Time magazine, published Monday, following his being named ‘Person of the Year’ for 2021, Elon Musk poked holes in crypto boosters’ hopes that cryptocurrencies could eventually replace fiat currencies as the global economy’s primary store of value. Given that Musk’s remarks regarding crypto have been accompanied by changes in their value in the past, it may be interesting to market watchers that his comments were again coupled with a drop in Bitcoin on Monday.

Stormy Waters Ahead?

Tesla took half-a-year to recover from its fall that began in February 2021, so investors may be crossing their fingers that the electric vehicle industry leader doesn’t take until next summer to recoup Monday’s losses. Despite Monday’s gloomy trading results, traders may still be looking at the approaching opening of Tesla’s German gigafactory, as well as consistently encouraging quarterly revenue figures, as sources of optimism regarding the company’s stock. All in all, time will tell whether Monday’s drop was a blip on the radar or the harbinger of bearish trading days to come.


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