Tesla (NASDAQ:TSLA) has faced continued turmoil over the past month as TSLA struggles with profitability, cash burn, and CEO Elon Musk losing control. After again failing to break out at the $320 level on Feb. 28, TSLA stock has since dropped almost 10%.
I look for more of the same as the Musk magic turns more and more into the Musk mirage.
The drop in the Tesla stock price follows Musk’s most recent announcement that the electric car maker will not be profitable in first quarter 2019. Tesla has struggled since its inception to turn a profit and has never done so for three consecutive quarters.
Much of the blame for the recent dismal performance in TSLA stock can be attributed to founder and CEO Musk. He seems way more interested in managing his own public relations than he is in fixing the problems within his company. His erratic behavior has long been a cause for concern and a risk for the company; now that risk is being expressed in a lower Tesla stock price.
Dealing With an Erratic Elon
Elon Musk’s spat with the SEC underscores this point. On February 19, Musk posted a tweet predicting the production numbers for Tesla. This likely was in violation of a previous settlement with the SEC that barred this type pf behavior. Now, Musk could face severe fines and even a potential suspension from his position as the CEO of Tesla.
Rather than own up to his mistake, Musk instead took the fight directly to the SEC. The March 11 deadline to address why he should not be held in contempt has come and gone. Probably not a wise decision to pick a fight with a powerful government agency. Especially when so much of your revenue stream is reliant on goverment subsidies and contracts.
So, too, does Musk’s behavior as SpaceX CEO give investors another look into his penchant for justifying and complaining instead of fixing. Like Tesla, SpaceX has also struggled to correct the glaring flaws in its production and safety standards, leading NASA to award government contracts to its competitors.
TSLA Stock Faces Huge Overhead Resistance
Instead of addressing this problem directly, Musk seems to prefer to run damage control. SpaceX recently decided to place a critical NASA mission at risk by filing a formal protest over the decision to award a sought-after government contract to another company. This type of volatility is bad for business.
It’s also bad for TSLA stock. Shares are once again below the critical $300 level and have broken the 20-, 50-, and 200-day moving averages. This should provide significant overhead resistance to Tesla stock for the foreseeable future.
The lesson here is that Tesla always seems intent on playing the blame game and engaging in damage control instead of opting to fix the very real problems associated with the production issues and quality concerns. Most of this falls squarely at the feet of the CEO. That’s bad news for investors who have gone all-in on his vision and long-term future.
Tesla Stock’s Elon Problem
On March 5, Baillie Gifford, TSLA’s second-largest stockholder, opined that ousting Musk as CEO might not be so bad.
He is absolutely correct. Whether by a decision from Tesla’s directors, or by mandate from the SEC, Musk needs to go.Until then, Tesla stock remains a short on every rally. The former “Elon premium” has now turned into the the “Elon problem.”
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.
