Insights

Why Tesla Stock Dropped, Then Popped on Monday

What happened
Shares of electric-car leader Tesla (NASDAQ: TSLA) dropped more than 2% in early trading Monday, dragged down by a series of apparently bad news headlines. That’s the bad news.
The good news is that Tesla stock has already recovered its gains and is heading back higher as of 10:30 a.m. ET — on investors’ conclusion that the news isn’t really as bad as it first appeared.
Image source: Getty Images.

So what
Let’s take these headlines one at a time.
Tic-tac-toe, three in a row, first Barron’s reported over the weekend on investor concerns that Tesla CEO Elon Musk’s deal to buy Twitter for $44 billion could leave Musk loaded with debt and at risk of having to sell more Tesla shares — with a deleterious effect upon Tesla’s stock price. Barron’s, however, believes Musk has the situation well in hand and, indeed, just last week Musk confirmed that he has “no further TSLA sales planned” after raising all the cash he needed through Thursday.  
That crisis averted, Tesla proceeded to spook investors further this morning when it filed an amended 10-K/A form with the Securities and Exchange Commission (SEC) advising that its “proxy statement for the 2022 annual meeting of stockholders” will be delayed a bit. But if all Tesla is doing is getting its financial ducks in a row preparatory to implementing a stock split — as it hinted it’s contemplating back in March — then a slight delay in the proxy statement might not be bad news at all.    
Last but not least, this morning we learned that lockdowns to combat the spread of the coronavirus in China have limited deliveries of electric cars by local automakers Nio, Li Auto, and XPeng to just 18,000 units — their worst showing in the past year. If Tesla finds its own production and deliveries crimped by these same factors, as could happen, then investors may be right to worry about Tesla missing its sales targets this quarter as well.  
Now what
But here’s the thing: Tesla just finished crushing on sales and earnings in its first-quarter earnings report, despite suffering three weeks of factory shutdowns because of the coronavirus in China. But with two other new Gigafactories (in Texas and in Germany) to pick up the slack, Tesla still expects to grow production 60% this year.
What’s more, even in Shanghai, Musk says his Gigafactory production is “coming back with a vengeance.” Over the weekend, Shanghai cautiously reported that it seems to have contained COVID-19 spread to within only the areas it has quarantined, with no new cases reported outside those areas for the first time since the outbreak began. And this opens up the possibility that Shanghai could add to Tesla’s production this year, not subtract from it.  
Once again, it appears that Tesla has dodged a bullet. Three of them, in fact.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio Inc., Tesla, and Twitter. The Motley Fool has a disclosure policy. –

What happened

Shares of electric-car leader Tesla (NASDAQ: TSLA) dropped more than 2% in early trading Monday, dragged down by a series of apparently bad news headlines. That’s the bad news.

The good news is that Tesla stock has already recovered its gains and is heading back higher as of 10:30 a.m. ET — on investors’ conclusion that the news isn’t really as bad as it first appeared.

Image source: Getty Images.

So what

Let’s take these headlines one at a time.

Tic-tac-toe, three in a row, first Barron’s reported over the weekend on investor concerns that Tesla CEO Elon Musk’s deal to buy Twitter for $44 billion could leave Musk loaded with debt and at risk of having to sell more Tesla shares — with a deleterious effect upon Tesla’s stock price. Barron’s, however, believes Musk has the situation well in hand and, indeed, just last week Musk confirmed that he has “no further TSLA sales planned” after raising all the cash he needed through Thursday.  

That crisis averted, Tesla proceeded to spook investors further this morning when it filed an amended 10-K/A form with the Securities and Exchange Commission (SEC) advising that its “proxy statement for the 2022 annual meeting of stockholders” will be delayed a bit. But if all Tesla is doing is getting its financial ducks in a row preparatory to implementing a stock split — as it hinted it’s contemplating back in March — then a slight delay in the proxy statement might not be bad news at all.    

Last but not least, this morning we learned that lockdowns to combat the spread of the coronavirus in China have limited deliveries of electric cars by local automakers Nio, Li Auto, and XPeng to just 18,000 units — their worst showing in the past year. If Tesla finds its own production and deliveries crimped by these same factors, as could happen, then investors may be right to worry about Tesla missing its sales targets this quarter as well.  

Now what

But here’s the thing: Tesla just finished crushing on sales and earnings in its first-quarter earnings report, despite suffering three weeks of factory shutdowns because of the coronavirus in China. But with two other new Gigafactories (in Texas and in Germany) to pick up the slack, Tesla still expects to grow production 60% this year.

What’s more, even in Shanghai, Musk says his Gigafactory production is “coming back with a vengeance.” Over the weekend, Shanghai cautiously reported that it seems to have contained COVID-19 spread to within only the areas it has quarantined, with no new cases reported outside those areas for the first time since the outbreak began. And this opens up the possibility that Shanghai could add to Tesla’s production this year, not subtract from it.  

Once again, it appears that Tesla has dodged a bullet. Three of them, in fact.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio Inc., Tesla, and Twitter. The Motley Fool has a disclosure policy.

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