Tesla Stock Is Floundering Under Elon Musk’s Many, Many Distractions

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  • The recent Twitter (TWTR) acquisition by Elon Musk will take time away from Tesla (TSLA).
  • Quality concerns and recalls continue to mount.
  • Recent price hikes will further erode demand.

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Tesla (NASDAQ:TSLA) stock initially jumped following the latest earnings report on April 20. TSLA stock traded up to nearly $1,100 before dropping back towards the $900 area. Much of this drop coincided with the $44 billion purchase of Twitter (NYSE:TWTR) by Tesla CEO Elon Musk.

Edward Moya, a senior analyst for the OANDA Corporation in New York, said before the deal passed that the move will “likely take some of Musk’s attention away from keeping its dominance in the EV race.” His concern is valid.

Mr. Musk also sold $8.5 billion in TSLA stock to help finance the Twitter deal. This is a telltale sign that attention will likely be diverted away from Tesla towards Twitter.

Many investors fear that Musk will ultimately become too distracted with his recent social media purchase to fix the many outstanding concerns that Tesla faces. Make no mistake about it: There are many.

Self-Driving Software Problems

The National Highway Traffic Safety Administration (NHTSA) launched two formal investigations into the Tesla autopilot software this month.

Bloomberg first reported the probes. It said that they could result in Tesla having to restrict autopilot software and retrofit cars. An autopilot clampdown would certainly do harm to the quality reputation among consumers. It would also spook investors and lower confidence.

These investigations may also increase the ongoing tension between Tesla and Washington. Were a crackdown to occur, such as in regulations or oversight, investors would take note.

The NHTSA does not appear to be alone in probing Tesla’s autopilot software. A new documentary series is looking at “how Autopilot has been a factor in several deaths and dozens of other accidents that Tesla has not publicly acknowledged.” The negative publicity it creates could further weigh on TSLA stock when it airs May 20.

Massive Tesla Vehicle Recalls

Tesla has already had eight different recalls this year, according to Barron’s. The latest, in April, impacted more than 590,000 vehicles.

Concerns over safety are no doubt spooking consumers and investors. Software that may violate federal standards is not the end of the world, but it is alarming. Michael Brooks, who is acting executive director for The Center for Auto Safety, said Musk’s company tends to “play a little fast and loose.” He also stated that “they seem to like to ask for forgiveness rather than permission a lot.”

Recent examples of other recalls include October’s loose suspension bolts in Tesla Model 3 vehicles and false forward collision-warnings that unexpectedly triggered emergency brakes. In February, 817,000 vehicles were recalled because seat belt reminders did not work. 580,000 cars were recalled because of a “Boombox” feature conflicting with Pedestrian Warning System sounds.

A few recalls do little to impact valuations. However, when the public begins to see what it perceives as a clear pattern, things change. It begins to create a much bigger problem from a financial market standpoint as well.

Musk’s other initiatives, such as SpaceX, also face these quality control problems, with the company recently crashing a rocket in violation of its Federal Aviation Administration launch license. None of this spells good news for the future of Tesla stock when shareholders are already questioning Musk’s level of focus on the company.

Price Hikes

Finally, price hikes are a particularly important factor in why skepticism of Tesla stock is warranted. Price increases may dramatically impact sales as inflationary and supply chain pressure meets expensive technology production decisions by Musk.

Tesla’s entire line saw gradual price increases in 2021, and the company has implemented more aggressive hikes in 2022. The automaker implemented a $1,000 increase on vehicles with long-range battery packs in March. Also in March, Tesla added an extra $2,000 to the purchase price for the Model 3 Rear-Wheel-Drive — the company’s most affordable vehicle.

The pricing pressures Musk currently faces likely won’t improve any time soon. The Russia-Ukraine crisis doesn’t appear to be reaching an end. Rivian Automotive (NASDAQ:RIVN) CEO RJ Scaringe recently warned that the world will need 900% more battery production within the next decade to meet demand. Companies such as Tesla will need to get creative and explore ways to mitigate these pain points for consumers. But does Musk have too many other fish to fry?

Tesla investors already know that investing in Musk comes with surprise and risk. The controversy-ridden acquisition of SolarCity and the constant fights with the SEC are just two examples. The Twitter acquisition may very well be the most concerning of all. This is especially true given the compulsivity of Mr. Musk to remain in the spotlight. All of this is coming at a time of great trouble for Tesla. Investors should proceed with caution.

On the date of publication, Tim Biggam did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.