In the 2000 blockbuster movie Gladiator, the eponymous character Maximus looks to the bloodthirsty masses at the Coliseum and derisively asks: “Are you not entertained?” after a life-preserving victory. The crowd falls silent, realizing what they had become with a young, self-serving emperor setting the tone. What’s that got to do with Tesla Inc (NASDAQ:TSLA)? It’s the same question I’ll pose (again) to current and would-be owners of TSLA stock: Are you not entertained by all the recent volatility-inducing drama? This is what you signed up for after all, right?
More Drama
The latest chapter in this sordid saga: The electric vehicle manufacturer’s Model 3 assembly line’s buildout is behind schedule, by about three months. It won’t be producing them at the once-touted pace of 5000 per month until the latter part of the first quarter of 2008, with the company’s own battery gigafactory cited as at least one of the reasons for the bottleneck.
It’s not surprising, truth be told. In fact, what would have been surprising was Tesla being on schedule, considering CEO Elon Musk’s penchant and history for overpromising and underdelivering.
The market was surprised nonetheless, however, with the TSLA stock price plunging 7% the day the bad news was released.
The drama hardly ended there, however. Shortly thereafter, Tesla announced it would be acquiring one of its suppliers, Perbix, as a means of shoring up some of the challenges with the development of its assembly Model 3 line, and as a means of appeasing frustrated owners of TSLA stock. The deal wasn’t announced, however, until after investor lawsuits were planned. Apparently some investors (or at least some attorneys for investors) felt they were duped into taking Musk at his word despite a long string of previous delays and shortfalls.
Were it any other company, the events of the past few days would be eye-popping. When it’s Tesla though, it’s par for the course.
And it should change the way investors look at Tesla.
What is Tesla Really?
I’ve said it numerous times before but it merits repeating now: If you’re thinking of Tesla as a conventional investment in game-changing technology a la Apple Inc. (NASDAQ:AAPL) or Facebook Inc (NASDAQ:FB), think again.
Owning TSLA stock, rather, is a bet on how the market will feel about the premise of its cool electric cars at some point in the future. Actual profits don’t factor in, as actual, sustained profits aren’t even on the radar yet. In that regard, it’s more like Amazon.com, Inc. (NASDAQ:AMZN), which has captured the hearts and minds of consumers with its amazing top-line growth despite perpetually paper-thin margins.
Indeed most fans and followers (and owners) of TSLA stock are playing with it primarily for entertainment purposes. This is, if nothing else, a fun story to watch whether they want to admit it or not.
It’s a reality that that sets the stage for some unnerving volatility from time to time, sometimes for the better, and sometimes for the worse.
Don’t misread the message. Just because Tesla shares are a speculation on future headlines more than an investment in future results isn’t a bad thing. It’s also not to say the stock can’t or won’t move higher at some point in the future. It’s simply to say, don’t be surprised when the stock’s action doesn’t make much sense. This is a name largely driven by fear and greed and speculation, and those mindsets are stunningly volatile.
Plan accordingly.
Looking Ahead for TSLA Stock
As for what’s next with this soap opera of a stock, it’s in a strange limbo right now.
Last week’s drubbing left behind a bearish gap that would usually beg to be filled. The dip also pulled TSLA shares under the key 200-day moving average line though, after we saw bearish crossunders of all the other key moving average lines. This suggests a downtrend was brewing anyway.
It’s also interesting that the stock has had ample time to start banging out a recovery, yet so far has been unable to even fight its way above a ceiling that’s since developed around $308. If a bounce was in the offing, we would have expected to see more evidence of it by now. On the flipside, until TSLA stock starts to break under the lows hit the day it cratered last week, we can’t assume more downside is in store.
One thing is for sure though… whatever’s in store, it’s going to be driven by traders feeding on Tesla’s headlines rather than the company’s results.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
