Shares in Tesla (NASDAQ:TSLA) stock closed below a split-adjusted $200/share for the first time in 17 months after it announced the recall of 40,000 vehicles.
The issue is a potential loss of power steering assistance on cars made at its U.S. factory.
Tesla issued a firmware fix to address the issue. It affects 2017-2021 Model S and Model X vehicles. The National Highway Traffic Safety Administration (NHTSA) said the issue could lead drivers to lose power steering assistance going over potholes or bumps.
Tesla’s Bigger Problems
Tesla has bigger problems than potholes.
CEO Elon Musk’s purchase of Twitter means billions in stock must be sold, while more shares must be pledged as collateral for loans. Twitter has been off to a rocky start under Musk’s leadership, which took place in the midst of the U.S. midterm election campaign.
The fear is that Musk is becoming distracted, just as competition emerges from automakers around the world to Tesla’s electric vehicles.
Technicians argue that breaking through $200 creates a negative “head and shoulders” pattern for the stock. They say the next downside target is $180, and it could go to $100 if there is more bad news.
Tesla earned $3.3 billion, 95 cents/share under GAAP, in its most recent quarter, on revenue of $21.45 billion. The revenue number fell short of analyst estimates. Some said the earnings call went poorly as well.
Since announcing earnings Tesla is down about 10%. The shares were due to open at $195, a market capitalization of about $650 billion. Shares are down about 40% on the year and are underperforming the market.
TSLA Stock: What Happens Next?
TSLA stock has long traded like a technology stock, not a manufacturer. Tech stocks are not in fashion this year. Tesla is also a growth stock. Those are also out of fashion.
Manufacturing is in fashion. But manufacturers often trade at a discount to revenue. Tesla is still worth more than 10 times last year’s revenue. With competitors finally nipping at its heels, the next year could be rough, and its problems won’t be fixed with a tweet.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
