Tesla Motors Inc (TSLA) Stock Drop Was Not Caused By A Fire

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The massive loss in value in Tesla Motors Inc (NASDAQ:TSLA) yesterday and today has been linked to an incident involving a fire and a Model S. Footage of a flaming Model S in Seattle emerged yesterday before the company’s stock began to tank. The fire may have had something to do with the Tesla Motors Inc (NASDAQ:TSLA) loss of value, but it did not cause it.

Tesla Motors Inc (TSLA) Stock Drop Was Not Caused By A Fire

Tesla Motors Inc (NASDAQ:TSLA) is not so fragile that a single car accident could knock 10 percent off of the value of the company in a couple of days. Tesla Motors stock is, however, valued at such a high level that there is significant downside to any negative headline pressure.

Headline pressure at Tesla

The idea of a proximate cause only makes sense with its partner, the ultimate cause. The proximal cause for yesterday’s value shedding could have been the fire, or it could have been the release of a couple of negative reports on the company. The ultimate cause had nothing to do with the headlines, however.

Tesla Motors Inc (NASDAQ:TSLA) is valued at far more than it can make in the coming years, and its business model reads like science fiction to anybody familiar with the auto industry. Science fiction has been known to mirror the future, but betting on clairvoyance is a risky proposition. Tesla is overvalued by any traditional metric. Analysts have had to invent new ones in order to keep up with the company’s stock price.

As Tesla Motors Inc (NASDAQ:TSLA) crept toward another big psychological barrier it seemed less and less likely that the company’s value could keep growing. Negativity from the report, and possibly from the Tesla Motors Model S fire video, may have triggered the response, but it did not really cause the problem. Market jubilation about the company did that.

Valuing the electric car

Those who thought yesterday’s drop in value would inevitably lead to a huge loss of value in Tesla Motors Inc (NASDAQ:TSLA) stock as the bubble burst have been wrong today. The company’s stock is down, but it has by no means collapsed in value. The running of the bears did not happen today. It might tomorrow, or it might in a month’s time, but it did not happen today.

Investors will have to decide for themselves what a fair price for Tesla Motors Inc (NASDAQ:TSLA) is. The company is still overvalued by any reasonable metric, but some investors are willing to bet on vision and hope. If it pays off the company could return huge value. If it doesn’t, investors will lose out.

The fact that the Tesla Motors Inc (NASDAQ:TSLA) Model S is not immune from car crashes did not cause the drop in price yesterday. The company’s huge valuation makes it susceptible to downside on headline pressure. That shouldn’t be a surprise to investors. If it is, they shouldn’t be betting on Tesla Motors Inc (NASDAQ:TSLA).

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