Tesla has seen a sharp fall in share price attributed not to any faults of the company but rather an overbuying by the general public which had forced shares to an unrealistic level of value.
While many claimed the actions recently of company owner Elon Musk’s appearance on the Joe Rogan Experience, which coincided with the start of the share price fall, the actual reason is clearly over valuation.
Many people worldwide had seen the sharp rise in value of Tesla shares since 2017, and from this, stock buyers who have very little experience entered the market, assuming the share price can only get higher.
In fact, the share price at $170 to $200 USD was already pumped up highly by speculation, meaning a further fall to a new low is highly likely should these non-experienced investors decide to cut losses.
Tesla shares peaked a few months ago at $365.71 USD on 14th December 2018, since then they have fallen to a low today of $188.22 USD, a price that has not been seen since the pre-boom time of December 2016.
The actual value of the share price may be closer to $150 provided a rumoured corporate take over does not send the share price falling further.
Tesla’s Model 3 got off to a shaky start when it came to customer / dealer delivery, with many cars stuck in transit while payment arrangements by the parent company for delivery were delayed.
This was however a minor setback and since then the Model 3 has been very popular with steady sales.
Tesla expect to release their new supercar, the Tesla Roadster 2020, next year. The Roadster 2020 has been in prototype stage since 2017. The company recently announced that they are on track to meet their 2020 deadline and the car is in its final stages of pre-production.
While the quality and popularity of Tesla cars themselves continue to grow rapidly, the public should be under no illusion that the quality of Tesla cars and the company itself is still where it has been for some time. The recent share price losses are simply because of over-speculation by a large amount of the public buying shares without knowing their true value.
Tesla announced on the 24th of May that they are seeking to obtain another 2 billion dollars in funds, they aim to do this via two means. First is via release of 2.72 million shares of stock, which would raise about $650 million USD for the company in the short term. Longer term offers Tesla is asking for involve 1.35 billion dollars USD of debt securities which would mature in the future to stock holdings.
These large offerings have increased rumours that a large corporate may undertake the purchase of a large number of shares or debt securities, in a bid to gain influence over Tesla as a company.
While the recent announcement of more shares and securities being sold, has lead to a fall of around $10 USD in share value since May 24th, the majority of Tesla share price losses were incurred prior to announcement of this new fundraising initiative, further indicating the share price is definitely overvalued.
The sharp fall in share prices over the last 2 years is unfortunate for Tesla, as they will now be forced to sell new shares at a lower price than their first initial public offering. The funding however is required to generate short term income for future projects and development.
Image: Steve Jurvetson