Shares of Tesla (NASDAQ:TSLA) continue to struggle over the past week, tumbling to its most recent low of $211. TSLA stock rebounded slightly to close at $215. This most recent price drop was likely due to the suit filed against Tesla over SolarCity’s apparently defective solar panels.
The multi-million dollar lawsuit brought by Walmart (NYSE:WMT) will undoubtedly be a drag on the company’s overall profitability—both due to extensive litigation costs and more importantly, because of the damage to the already shaky reputation of Tesla. It’s time to short Tesla stock on any strength.
According to Walmart, Tesla’s subsidiary engaged in “negligent installation and maintenance” of its solar panels, resulting in seven fires atop Walmart roofs. These fires, which caused millions of dollars in damage, are unlikely to be isolated incidents.
As publicity surrounding this trend of increases, one can only expect more claims of negligence against Tesla to surface. Even now, e-commerce giant Amazon (NASDAQ:AMZN) is claiming that it also experienced a 2018 rooftop fire connected to Tesla’s solar panels.
TSLA Stock Suffers From Suit
This turn of events is bad news for Elon Musk’s electric car company, which now faces an immense legal adversary at the very time its financial resources are becoming increasingly scarce. Tesla stockholders are likely to endure heavy headwinds going forward, making the prospect of short-selling TSLA stock all the more lucrative.
The stock market agrees that Tesla may be in for further downside. RSI has shown no sign of strength and MACD has followed suit. Bollinger Band Percent B is seemingly stuck at the zero bound. Momentum continues to deteriorate while implied volatility has spiked, signaling investor nervousness. Tesla stock seems destined to re-test the old lows at $177 with a decent chance of breaking down even further.
Click to EnlargeTesla’s acquisition of SolarCity has, thus far, only caused the company to bleed money. As a result of the solar panel snafu, TSLA lost the support of one of its largest non-governmental partners in Walmart. Companies like Amazon are now vowing to reject additional Tesla systems at its facilities. Now, it looks like the situation for Tesla will likely only get worse.
The concerns of both Walmart and Amazon are certainly warranted. A review of the solar panels produced by Tesla (SolarCity) found that “a total of 157 action items requiring repairs or replacement of system components, 48 of which Tesla itself characterized as reflecting conditions that rendered the sites unsafe or potentially unsafe.” Tesla, it would seem, faces a crisis of quality—an all-too-common reality for Elon Musk’s business ventures. Similar quality issues have plagued the Model 3 for years.
While TSLA faces a constant barrage of quality-based criticisms, it isn’t alone; Musk’s privately-held aerospace company SpaceX shares this troubling trend. In fact, SpaceX is currently involved in litigation regarding the lackluster quality of its proposals.
In May 2019, Musk sued the Air Force over National Security Space Launch (NSSL) program’s “unfair” decision to reject the company’s launch contract proposal. As it turned out, however, the decision to pass over SpaceX had nothing to do with fairness, and everything to do with the proposal’s quality. According to Musk himself, SpaceX had written a poor proposal that had missed the mark. But that hasn’t stopped SpaceX supporters from rallying behind the company. They’ve gone so far as to add an apparent “SpaceX earmark” within the nation’s annual defense bill—the National Defense Authorization Act (NDAA).
Tesla Stock Moving Forward
The decision to prop up Musk’s companies—whether through Tesla’s subsidies or SpaceX’s legislative earmarks—only distracts from their endemic quality problems; it doesn’t solve them. This should raise serious red flags for any prospective or current Tesla stock investor. Musk’s companies have a storied history of poor quality control, and the crisis is unlikely to improve any time soon. The recent Walmart lawsuit may be the latest instance in this trend, but it certainly won’t be the last.
Vanity Fair summed it all up very eloquently in a recent article on Musk, pulling no punches and quoting laid-off Tesla employee Dennis Scott, “He’s Full of #$%*” in its headline. The Musk Magic is beginning to lose its luster. With no earnings and continued cash burn, Tesla stock is a short on every rally.
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.
