Turnover in the stock market is reaching levels unseen since just before the market collapse of 2008. Investors traded almost $3 trillion worth of shares in the quarter that just ended, and that’s only counting stocks in the S&P 500.
With the stock market churning faster than ever, it is imperative to evaluate all stock purchases carefully. One company that certainly gets a lot of publicity is Tesla (NASDAQ:TSLA).
The constant revelations, both good and bad, about the company have made Tesla stock fairly volatile. Its price has more than tripled during the past five years, but it dropped about 7% on Jul. 3 alone.
Tesla CEO Elon Musk is a familiar figure in the news media and on Twitter. He just lashed out at the press again, claiming that recent articles on the Model 3 woes have been, to coin a phrase, “fake news.” But the setbacks that have dogged Tesla are too numerous and varied to ignore.
Setbacks for TSLA
The electric car maker has encountered a lot of production problems related to its new, cheaper Model 3 sedan. This is the car that was intended to take electric cars into the mainstream. If it succeeded, it would catapult Tesla into the ranks of top-flight carmakers such as Ford (NYSE:F) and Honda (NYSE:HMC).
But working out the bugs in the Model 3 has caused the company to spend unforeseen amounts, leading it to post a loss of $675 million in the fourth quarter of 2017.
Tesla CEO Elon Musk had ambitious plans to automate almost all of the production-line process, but recent reports indicate these have largely failed.
The more labor-intensive process that the company has fallen back on is hurting the bottom line in two ways: the extra cost of the human labor, and the failure to meet Musk’s publicly stated production goals, which is making it harder for the company to raise capital.
Then Tesla’s factory itself had to be shut down on two occasions so that equipment could be upgraded. A new assembly was quickly put together under a tent in the parking lot, a move that did not inspire great confidence among investors.
Musk tried to turn things around, announcing with great fanfare that Tesla had hit its production goal of 5,000 Model 3 vehicles. Tesla stock began to rise, but as analysts dug into the details of the report, investors made a U-turn.
The most serious allegation was that Musk had asked engineers to stop putting the sedan through certain alignment tests, in order to meet the production goal on schedule. Musk angrily replied that this was not true, asserting that “we drive every Model 3 on our test track to verify braking, torque, squeal and rattle.”
Bottom Line on Tesla Stock
The result of all these issues is that Tesla stock has become one of the most “shorted” stocks in the market today, with many investors betting on its continued decline.
The stock price has now fallen below its 200-day moving average, which may trigger another round of selling unless Musk can come up with some unexpected good news to turn things around.
Electric cars are probably the wave of the future, and Musk is a master of publicity who has done a great job of getting his brand’s name out there. But with no record of earnings growth or dividend payouts, Tesla stock should only be purchased by those who enjoy gambling.
The author does not own any of the stocks mentioned in this article.