Headwinds for Tesla Stock
Tesla Motors Inc (NASDAQ:TSLA) has had quite a week. Just days after Tesla stock jumped on Elon Musk’s hint of a “master plan,” the firm was sideswiped by a host of legal troubles. Investors are worried that this much litigation could drown the stock.
I’m not convinced. Tesla stock has proven to be indestructible time and time again. Markets have routinely turned bearish on the company, but there was never any long-term damage to the share price. Just think about the recent offer to buy SolarCity Corp.
Tesla’s board of directors made overtures to SolarCity’s CEO on June 21 and Tesla stock crashed within minutes. The market was deeply skeptical about the motivations for the acquisition, particularly because Elon Musk sits on the boards of both companies.
There were plenty of angry op-eds written about the proposal. Wall Street analysts were screaming that TSLA stock was worthless, which obviously fostered some panic among retail investors. It’s no wonder Tesla stock fell more than 12% in a matter of days.
However, the hysteria soon evaporated, leaving nothing behind but the truth. And the truth is simple: Tesla is a rapidly growing company with a blue-sky outlook. That’s why its share price has bounced back 14.69% over the last few weeks.
TSLA stock has been quick to recover every time it comes under pressure and that’s why I’m not too worried about the current investigations. Let’s take a closer look at the ones that seem to be spooking some investors.
Regulators Try to Crush Tesla Stock
The most alarming case is an investigation into the death of Joshua Brown, a 40-year-old Tesla owner whose car collided with an 18-wheel truck. At the time of the accident, Brown wasn’t driving his Tesla “Model X”—it was driving itself.
While cruising down a highway, the Canton, Ohio native activated Tesla’s much-talked-about “Autopilot” function. Autopilot is a driver-assist program that makes the car capable of parking, navigating, and even changing lanes itself.
While Tesla has promoted Autopilot as the dawn of self-driving technology, the company emphasizes that drivers still need to be in control of the vehicle. Brown did not follow those instructions. He was reportedly watching a Harry Potter movie instead.
Like many enthusiasts of self-driving technology, Brown was putting his faith in the potential of driverless cars. The problem is that he did so before the technology had caught up with his ambitions. It failed to stop when a truck was making a left turn ahead.
Neither Brown nor the car survived the accident.
But that’s not what the investigation is about. It’s obvious that Tesla is not at fault. Instead, the company is under scrutiny for what happened after the accident—Tesla didn’t disclose the accident to shareholders. The case is currently being handled by the U.S. Securities and Exchange Commission (SEC). (Source: “SEC Investigating Tesla for Possible Securities-Law Breach,” The Wall Street Journal, July 11, 2016.)
Should Tesla have notified investors? The official answer is up to the SEC, but in my opinion, I don’t think so. If the company wasn’t at fault for the accident, why should it have to report it to shareholders? That doesn’t make sense.
In any case, TSLA stock hasn’t moved much since the news broke. Despite the barrage of articles criticizing Tesla and Elon Musk, the stock has barely moved. Investors are clearly not willing to take the bait anymore. They understand that Tesla is a solid bet.
So to answer the question posed in this article’s headline, no, I don’t think Tesla stock will be crushed by an onslaught of litigation. Some overzealous regulators may try to knock Tesla down a peg, but it doesn’t seem to be working.
The Bottom Line on Tesla Stock
What does seem to have captured interest, however, is Elon Musk’s promise of a “Top Secret Tesla Master Plan, Part 2.” (Source: “Musk Touting New Master Plan for Tesla Puts Focus on the Future,” Bloomberg, July 13, 2016.)
He released a similar document in 2006. The “Top Secret Tesla Master Plan, Part 1” outlined his vision for the “Model S” and Model X, both of which came to fruition. They also sent Tesla stock surging, so it’s reasonable to think this new document could provide the blueprint to further Tesla stock gains.