Tesla Stock Price Zapped By 11.5% Fall

Elon Musk says, “Told you so.” If you had bought Tesla shares at the start of the year, by the end of October you would have been s...

Elon Musk says, “Told you so.”

If you had bought Tesla shares at the start of the year, by the end of October you would have been sitting on a very tidy 400% profit over your original purchase price. But somewhat unusually, Elon Musk, the CEO of Tesla, in a rare display of corporate honesty, has been telling investors that the price is too high and needs to come down. In fact, at the recent opening of the Tesla showroom in London, UK, Musk is quoted as saying, “The stock price that we have is more than we have any right to deserve.” He had a point, with the shares trading at nearly 100 times the 2014 estimated earnings. Investors were obviously hoping for some good sales news to start coming out of the Californian electric car company.

image source: businessinsider.com

The fact is, this is not the first time that Musk has chastised investors for overvaluing shares in Tesla, but investors just don’t seem to be listening. Back in August, just prior to a CNBC interview, he also complained about the stock’s value only to see it climb 10% immediately following the comments. There was also a small correction on the share value, on 23 October, after the Bank of America Merrill Lynch questioned investors on the stock price, setting a target price of USD45 per share and sparking a small sell off that saw the stock fall 4% on the day.

Strangely, Tesla has issued the news that they have beaten their forecast with an adjusted result that showed a 12 cent earning per share, thus beating the previous forecast of 11 cents per share. What this means to us non-finance types is that Tesla raked in some USD431 million dollars in sales during the third quarter of the year but lost some USD38 million on these sales. This is worse than the 25 cent per share loss that analysts using GAAP had forecast. GAAP stands for ‘generally accepted accounting principles’ and is referred to when companies are compiling their financial statements. Tesla does not use this format for their reporting.
This recent news saw the share price plunge some 11.5% to USD155 per share in after hours trading on 5 November, but many are predicting that the price will fall to as low as USD141. Sales of the flagship Tesla S model have been growing and hit 5,500 units for the first quarter but it seems like the industry wanted more. Musk, commenting about the sales, said, “There is a huge demand in the USA for the company’s electric powered luxury cars but US sales may disappoint because the maker is capacity constrained and they will have to start deliveries into Europe through joint ventures there to overcome this issue.” During this conversation, Musk also noted that Tesla had signed a new agreement with Panasonic for more of the cells that go to make up the power pack of the Model S Sedan along with the Model X crossover SUV that is slated for launch later next year.

Elon Musk, who is the founder of Paypal, has created a bit of an auto industry wonder child with Tesla, which only sells all-electric cars starting at USD70,000. The company has been teetering on the edge of profitability and had expected to sell some 20,000 cars in 2013, a small number for the likes of Toyota or Ford, but enough to make the company a bit of a darling to the hemp-trouser wearing eco-warriors and to Wall Street investors as well. Over the past year, shares have soared from USD27 to as high as USD194.

Tesla's fortunes are currently and inexorably linked to a single model, the Model S sedan, and there will be efforts to launch 2 new vehicles next year - the Model X Crossover and an additional model in the under USD35 000 price range. There are still a lot of range and safety concerns over the technology employed by Tesla and the share price took a tumble after a video surfaced of one of the cars on fire in October. Apparently the battery pack was pierced by some debris from the road, causing a fire, but Elon Musk painted it as a 1-in-a-million accident that not only showed how safe the car is, but that the accident would have been as bad or worse for a conventional car.

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