Tesla Stock (TSLA)
Dear reader, you may remember that shares of Tesla Motors Inc (NASDAQ:TSLA) took a major hit last year. TSLA stock dropped below $200.00 as investors priced in effects from a horrific car accident—they believed this accident could be the downfall of Tesla stock. Here’s what happened.
There was an accident involving Tesla’s “Autopilot” feature. Since this feature is the cornerstone of driverless car technology, markets interpreted it as dangerous to Tesla stock (TSLA). Unsurprisingly, the share price plunged below $200.00.
For those who don’t recall the incident, let me explain…
In October 2014, Tesla started upgrading the software on its “Model S” luxury sedans. Some vehicles were given the new Autopilot feature as part of a live-action beta test. Think of Autopilot like cruise control on steroids.
It helps the car park itself, change lanes on a highway, and maintain speed. In other words, Autopilot is an early version of self-driving technology.
One driver took the Autopilot name too literally, and it resulted in a fatal accident. The other person involved in the accident said the Tesla driver was watching a Harry Potter movie instead of focusing on the road.
This raised questions about whether Tesla was partly to blame for the accident. It sounds bad, right?
Investors certainly thought so, because they rushed towards the exits. Too many of them sniffed legal troubles ahead, despite Elon Musk’s assurances that Tesla had covered its bases. The situation got worse when regulators launched an investigation into the accident.
That was months and months ago. The results just came in…
Tesla was completely cleared of any charges. Apparently, Elon Musk wasn’t exaggerating; they really had done enough due diligence.
In fact, regulators found that Autopilot had actually reduced Tesla’s overall accident rate. Let that simmer for a moment—the feature that everyone was scared of was really making them safer. So the discount on Tesla stock is completely unwarranted.
This marks yet another win for Elon Musk. He made a lot of bold claims last year that allowed critics to paint him as an overconfident, out-of-touch billionaire. Make no mistake, that smear campaign definitely shackled the growth of TSLA stock.
Let’s run through the list. You’ll see what I mean.
- Tesla promised to make 80,000 cars. It did. You may have seen headlines saying that Tesla missed estimates, but those reports are misleading. The company definitely produced enough cars to meet its manufacturing quota, thus proving that it can scale up production through 2017. However, there were shipping restrictions and failures to take delivery of it vehicles. So even though the final tally came up short, Tesla did what was important—it resolved the production bottlenecks.
- Tesla promised to turn a profit before the end of 2016. It did. This should have been the moment that drew investor confidence back into that stock. But when the company posted a net profit of $21.88 million in the third quarter of 2016, Tesla stock dropped nearly seven percent in a week. This is what I mean about pessimism weighing on the share price. Tesla had done what the market thought was impossible, yet investors didn’t price TSLA stock accordingly until much later.
- Tesla promised to start making batteries at the Gigafactory. It did. Tesla’s giant “Gigafactory” in the Nevada desert could become an important part of its business, but investors weren’t paying any attention to it. They must have thought that it was too distant an event. Boy, were they wrong. The Gigafactory came online at the start of January, meaning that Tesla’s cost of manufacturing could plummet.
As you can see, Tesla has been right on a consistent basis. Winning this Autopilot court case wasn’t a fluke, or a near miss, or anything else that TSLA stock bears would have you believe. It was a data point that investors should watch closely.
It shows a pattern. Tesla makes a bold claim and the market turns bearish. This leads to a discount on TSLA stock, but only for a limited time. Before long, Tesla fulfills its promises and investors return the share price to its original trajectory.