stock can not go up forever and stocks finally fall in pre-market trading on Tuesday. Reports of recalls and uncertainty about the Hertz deal are two reasons the stock may fall. However, a third cause may be more responsible for the fall than the other two.
Tesla (ticker: TSLA) stock has fallen about 4.3% in pre-market trading.
Dow Jones Industrial Average
futures are both slightly changed.
The Tesla stock has been in violent demolition. It has risen eight of the last nine trading sessions and has risen 70% over the last three months. Its shares have been lifted by signs that the company has indeed won the EV race when it signed an agreement with Hertz (HTZ) for 100,000 electric vehicles and companies such as
(GM) announced massive spending plans to try to close the gap.
It is therefore not surprising that the stock would react poorly to headlines. First, Musk himself tweeted that Tesla had not yet signed a contract with
(HTZZ). Then came the announcement that the company would recall 11,700 vehicles.
Musk tweet, however, was meant as a positive. The Hertz deal is Tesla’s first major fleet sale. Fleet sales tend to be lower margin. Fleet buyers are looking for volume discounts and do not often buy all the exclusive options that individual consumers make. Musk has assured investors, on
(TWTR), a few times that Tesla is volume limited – sells all the cars it can make – and offers no discounts these days.
The recall could be a major case. The cars are being recalled due to a software communication error that could enable automatic emergency braking. The fix is an over-the-air software update. In recent months, Tesla has been subjected to greater control by regulators over driver assistance functions.
What’s more, Tesla recently introduced a “beta” version of its latest full self-driving software to Tesla drivers who qualified for the upgrade. Tesla believes their software makes vehicles safer. However, regulators still need to adapt to cars that are improved by software updates and how to handle changes in the software to correct errors.
Any news, however, could have triggered a sale of the Tesla share. The stock is extremely overbought. Overbought is a technical term that looks at how quickly a stock rises or falls relative to its own history. When things get extreme, stocks can return to average. Tesla’s relative strength reading is 94. A reading of 50 is essentially normal, and a reading above 70 is when traders start looking for a fall.
On Tuesday, stocks rose about 18% over the past five days. Investors do not really need an excuse to make a profit. The Tesla stock has a long way to go before it really starts to get a hit.
Write to Ben Levisohn at [email protected]