Why Tesla Stock Plummeted 19% Last Month

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What happened

Shares of Tesla (TSLA 3.70%) fell 19.2% in April, according to data from S&P Global Market Intelligence. The electric vehicle (EV) leader’s stock fell in conjunction with CEO Elon Musk’s move to acquire Twitter and bearish momentum for the broader market. 

TSLA data by YCharts

Stocks sold off last month as investors weighed risk factors including high levels of inflation, upcoming interest rate hikes, and the war between Russia and Ukraine. Tesla stock also saw a precipitous drop at the end of the month after it was announced that Twitter would accept Musk’s $44 billion acquisition bid. 

Image source: Tesla.

So what

The S&P 500 index fell 8.8% in April’s trading. Meanwhile, the tech-heavy Nasdaq Composite index fell roughly 13.3% across the stretch, marking the index’s worst month since October 2008. Despite releasing strong first-quarter results and vehicle-delivery updates, Tesla wasn’t immune to the broader market’s momentum.

Tesla shareholders also balked at Musk’s move to acquire Twitter. Investors were concerned that the EV company’s CEO would wind up selling a significant amount of the EV company’s stock in order to raise funds for the deal, and it was revealed through a filing on April 29 that he had sold roughly $4 billion worth of shares. 

In addition to concerns about a large block of shares being sold in a short time, Tesla shareholders were also concerned that Twitter would wind up being a distraction for Musk. With the EV company and SpaceX already under his leadership, some investors are worried that running the social media company will lead to the CEO’s attention being stretched too thin. 

Now what

Tesla stock has regained some ground early in May’s trading. The company’s share price rose 3.7% in the month’s first trading day. 

Tesla now has a market capitalization of $935.5 billion and is valued at roughly 11 times this year’s expected sales and 74 times this year’s expected earnings. The EV leader is posting impressive margins and increasing sales at a much faster clip than its established rivals in the auto industry, but whether the company can live up to, and exceed, its highly growth-dependent valuation over the long term remains hotly contested among investors. 

Between its category-leading position in the EV space and the potential to see growth powered by other, high-margin categories including battery technologies and self-driving software, it’s clear Tesla is different from most auto companies. However, the industry has historically been very competitive, and the company will have to continue delivering innovation wins in order to justify a valuation that’s so far ahead of the pack.