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The Wild Swings in Tesla Motors Inc’s Stock And What They Mean For Investors

Written by on December 22, 2014

Nobody likes a stock whose price swings wildly. Tesla Motors Inc (NASDAQ:TSLA)’s stock has traded at below $140 and above $280 within the same year. This is probably too volatile even for Tesla’s owner and CEO, Elon Musk.

In fact, he was quoted as saying that he is okay with the correction of Tesla Motors’ stock price. The stock has declined by about 4.5% in the last six months although it has risen by 53.0% overall in the past one year.

Some Near Term Troubles for Tesla Motors

From the resignation of its China President, Veronica Wu, to the decline in crude prices, Tesla has some problems on its hand that will keep its stock price depressed in the near future. The decline in crude prices, unlike in previous decades, is not even guaranteed to ensure the revival of global economic growth.

As the Financial Times analysis shows, the depressed oil prices will mostly benefit “countries that are simultaneously heavy users of energy and largely dependent on oil imports.” Countries such as India and Indonesia.

In the U.S., there will be nearly a million expensive cars and SUVs will be sold this year — whether that is caused in large part by the friendly gas prices or not can be a matter of debate.

(Top 5 Challenges for Tesla Motors Inc (NASDAQ:TSLA))

 Model 3 Dreams

Tesla’s drams of being a mass market carmaker that sells half a million cars a year rest on its Model 3 which is expected to sell for $30,000. There are some naysayers who cast doubt on Tesla’s optimistic projections about the Model 3.

Tesla has so far been a bit late on its delivery promises of the Model S luxury sedan — it has lowered its guidance for both of the recent quarters by 2,000 cars each. The launch of its next vehicle — the Model X SUV — has also been delayed twice already. It was supposed to come on the market in 4Q2013 but now the expected arrival is in 3Q2015.

The Gigafactory is being built in Nevada but is a bit of a gamble. It remains to be seen if Tesla’s optimistic projections about the reduction in battery prices because of the Gigafactory will come true. If the expected price reductions do not happen, having the world’s largest battery manufacturing facility won’t be of much help.

If the cost of the Tesla Model 3 gets pushed up closer to the $50,000 mark rather than the $30,000 level, that will act as quite a dampener on customer demands. There are not only existing electric vehicles (EVs) to compete with the Tesla — such as the Nissan Leaf, Chevrolet Volt — there are more vehicles in the hybrid vehicle category — such as the BMW i3 — which will provide stiff competition to the Tesla Model 3.

In fact, all the major automakers have plans for the EV segment — everyone from BMW, Toyota, Mercedes, Nissan, GM, and others — and their plans will be coming to fruition in the next few years.

Tesla Stock Price

Investors who expect short term gains from their Tesla holds may be disappointed. Tesla is not even a profit-making company and will likely take many years to become one. Of course, as Google seeks a partner to manufacturer its driverless cars — or utilize Google’s driverless technology — Tesla may get into a partnership with Google. Or Google may acquire Tesla. An acquisition will also make it easy for Google to experiment its Android for cars. If other automakers are hesitant to put Android in their cars, Google can well get its own car company and put Android in them.