A Few Reasons Why Tesla’s Shares Nosedived Over the Past Week

Source: Tesla

We’ve discussed the phenomenon of the knee-jerk reaction that American automotive buyers have in the face of rising or declining gasoline prices, but it’s worth mentioning again here, as it’s pertinent to this story. When gas is cheap, shoppers flock to large cars, SUVs, and pickups with a seemingly reckless abandon for whatever the volatile commodity will do next. When gas swings back up, pickups are exchanged for Priuses, and Suburbans are swapped for C-Max hybrids as the cost to fill a tank soars.

With oil at five-year lows of $60 and some change on the barrel, analysts and investors are carefully watching the impact on hybrids and electric vehicles, two of the first casualties of cheap crude. The American shale boom, coupled with OPEC’s decision not to cut output, has driven down the price of gasoline to levels last seen in 2008 and 2009 — and with it, has reignited America’s thirst for big automobiles.

But some products born in the last half-decade of $4-per-gallon gas may struggle as a result, notably Tesla’s Model S. Cheap oil, combined with a less-than-flattering independent sales projection, has driven down the EV maker’s stock for the eighth consecutive day, and at Monday’s close it was trading down nearly 15% over the week-long period. Tuesday’s closing saw some relief, before nosing back down in pre-market trading on Wednesday morning.

Thing started going awry when analyst John Lovall at Merrill Lynch — a noted Tesla bear — implied that Tesla may be sitting on an inventory of about 3,000 unsold vehicles. This is significant because CEO Elon Musk and the company have been defending their sales figures with capacity constraints, versus a shortage in demand. Forbes took up the story and countered Lovall’s claims, but the seed of doubt had been planted. Tesla’s sales were already under intense scrutiny to begin with, since the company doesn’t report its sales on a monthly basis. This was in November.

InsideEVs estimates that the culmination of factors yielded sales of 1,200 Model S sedans during the month of November. Again, this is a rough approximation, and it comes in 300 units shy of last year’s November figure. It was this report that started Tesla’s stock slide that, at the time of writing on Tuesday, hadn’t let up. The figure is below November 2012’s 1,361 units sold.

“With the low oil prices, people will think, ‘I can buy a normal car, it’s more beneficial that way,’ ” Ole Hui, an analyst at Mizuho Securities Asia, told Bloomberg. “There’s less incentive to go to electric vehicles.”

Hui raises a valid point. At about $100,000 for a well-equipped model, the Tesla is a steep proposition in the first place. Buyers who are cross-shopping it with gasoline-powered alternatives will undoubtably include efforts to make up the difference between the MSRPs with the cost of fuel on an annual level. Currently, that comparison will be more favorable for gasoline cars because fuel is so cheap right now.

America’s jack-rabbit attention span when it comes to shopping for vehicles hasn’t suited many well in the past, though. Low gas prices make large cars more desirable for many, but as we’ve seen historically, gas prices can skyrocket by dollars on the gallon in a matter of months or even weeks. What was once a $70 tank of gas at about $2.70 per gallon turns into a $100 tank of gas at $4, and there’s a very small minority — if any — who are arguing that gas prices will remain below $3 per gallon for an extended period of time.

There’s another factor at play in InsideEV’s projections, as well: The pending arrival of the D line of Model S sedans, or cars that have two electric motors to enable all-wheel-drive capabilities. Though the concepts were introduced earlier this year, the cars haven’t yet begin moving off the assembly line, and it’s likely that there’s a good block of buyers who are holding out for those cars, as they offer more range, more power, and better grip.

Source: James Lipman/Tesla

If gas prices remain low, however, then Tesla’s longer-term sales picture looks a bit more bleak.

“We believe the recent decline in [Tesla] shares is largely driven by the concern low gasoline prices could impact demand if sustained for the long term,” Bloomberg reports Ben Kallo, an analyst with Robert W. Baird & Co., as saying in a note dated from Monday. But the fact remains that despite the cheap oil, EVs and hybrids still saw a 1.6% uptick in November sales overall.

“We think the weakness provides a buying opportunity,” Kallo said in the note, per Bloomberg. Tesla “will continue to see strong demand which is largely driven by performance, quality, and brand.”

“The first half of November was basically a cleaning up the last batch of ‘regular’ RWD sedans and filling in a lot more Euro deliveries ahead of ‘D’ production,” InsideEVs said. “That D production began the last week of November (the 24th to be exact) displacing the regular drive orders ending out the month and will continue through December…so if you want a non-AWD Model S in the US, get ready to wait a long, long time for delivery — think March/April, after the rest of the 85D/60Ds are filled.”

The publication added, “If there was ever a month to be ignored for Model S sales, it would probably be November.”