At the start of the year, if there was anydiscussion in the market as a model of the current surge and plunge, Bitcoin may not have been the hottest talk, but perhaps Tesla’s share price! Tesla shares plunged 17 percent on Wednesday after six days of gains, the biggest one-day drop in the last eight years, and wiped $5.9 billion ($41.13 billion) off the fortunes of CEO Elon Musk.
Original title: Falling back to Earth from Mars? Tesla fell into a technical bear market in just one day!
By the close of the day, Tesla’s shares were down more than 24 percent from their previous session’s high of $968, plunging into a “technical bear market.”
It was Tesla’s biggest one-day percentage decline since November 6, 2013, when the stock fell 14.5 percent.
Tesla’s rise was nearly 20 percent on Monday and 13.7 percent on Tuesday. At one point, it was worth nearly $170 billion, more than for Ford Motor Co., General Motors, Honda Motor Co., and U.S.-listed Ferrari.
Why did Tesla soar and then plummet?
Analysts said Tesla’s rally ended abruptly or because on February 4th, Tesla’s vice president of external affairs, Tao Lin, said on Weibo that delivery, scheduled for early February after the Spring Festival, would be put on hold and would be put on hold after the outbreak improved, and that plans were being made.
In a conference call last week to release fourth-quarter results, Zach Kirkhorn, Tesla’s chief financial officer, said the Model 3 production would be delayed by a week and a half, and the shutdown could slightly affect the company’s profitability in the first quarter of 2020.
Meanwhile, Ralph Nader, a prominent US consumer activist, warned on February 5th of the recent surge in Tesla’s stock, calling on regulators to consider an investigation into potential insider trading.
“The Securities and Exchange Commission should be aware of investor protectionhere here and check for conditions for insider trading, potential market manipulation and even liquidation. Nader said.
Mr Nader also questioned the ethics of a bonus scheme: Elon Musk, Tesla’s chief executive, would receive $900m if the company could reach a market capitalisation of $100bn over a sustained period of time. Tesla’s recent stock price has gained a market value of more than $130 billion.
On January 23rd Nader tweeted: “The bursting of the stock market bubble began with a bigger-than-expected surge in Tesla’s stock market…”
Visible, Tesla’s recent surge is likely to be due to some short positions. This, according to Mr Nader, has exacerbated recent volatility in the company’s stock.
“Tesla’s share price is now all at the top of the hill, with tesla selling less than 400,000 cars in 2019, and its valuation is already overthethed by the sum of Volkswagen and GM,” Nader said. “
Tesla’s market value has been taken out of fundamentals
In fact, before the share price crash, investors and analysts had said Tesla’s market value was out of touch with fundamentals.
In the past three months, Tesla’s share price has more than tripled, its market value has quadrupled to $150 billion and is the second-largest car company in the world after Volkswagen and BMW combined.
And Tesla’s ability to achieve this is not a surge in sales. Tesla delivered 367,500 cars last year, up 50 percent year-on-year, but delivered even half as much as VW delivered 11 million and Toyota delivered more than 9 million. But Tesla’s market capitalisation is bigger than Volkswagen’s, a situation that has left many wondering.
Notably, capital markets have been more cautious about Tesla’s share price, with analysts at Canacel Genuity downgrading Tesla’s stock to “hold” from “buy” and saying that after its “exciting rally”, “investors can get a balanced risk return to lock in profits.”
Adam Jonas, analyst at Morgan Stanley, said: “While Tesla’s fourth-quarter results were slightly stronger than expected, the company’s 2020 sales and gross margin outlook did not materially exceed consensus expectations.” That’s why many investors are struggling to find strong fundamentals. “
CNBC reported that Tesla is a common target for those who want to make money by shorting stock and then buying back at a lower price. In fact, Tesla is the most shorted stock in the U.S. market in January 2020.
But as Tesla’s share price hit record highs in January and early February, more and more shorts were forced to capitulate and buy back shares, further widening the short-stakes. According to S3 Analytics, a data firm, the bets on Tesla are so concentrated that the short-selling deals lost more than $1.5 billion in market-based settlements in the week alone.
Tesla’s trend is reminiscent of Qualcomm and Bitcoin…
It’s worth noting that Tesla’s stock has performed in the past few months in a similar way to some of the other over-hyped assets: such a huge gain is at odds with Tesla’s more modest fundamentals, including annual losses, but similar to many other assets that have experienced long-term bubbles. They include Qualcomm’s stock and other tech stocks in the Internet age, oil in 2008 and Bitcoin in 2017.
Peter Cecchini, chief market strategist at Cantor Fitzgerald, likens the current market to a “bizarre world” where everything runs counter to the trajectory that should have been followed. And Tesla is leading the way. “The rise in Tesla’s share price is a sign of speculation,” he said. “
There have been hundreds of stocks that have soared in the internet age, but few have reached the level of enthusiasm that Qualcomm has. At the time, Qualcomm stock caught the first real explosion of mobile phone growth. Analysts boast that Qualcomm’s chips will be the “technology of choice” for handset makers.
In 1999, Qualcomm’s share price soared from $5 to nearly $90 after the stock split. At the time, the company did not seem to have any competitors. Then the bubble burst, the economy deteriorated, and competition emerged. Qualcomm at least survived the bubble. Many companies don’t. After a long decline, Qualcomm’s current share price is about $88, almost the same as its peak in the internet era.
Oil prices were in a bubble in 2008. Oil prices soared around 2005, driven by the global economic boom. In the summer of 2008, oil prices hit a record high of $145. However, the price has strained businesses and commuters everywhere. Then the already faltering economy took a hit, and oil prices fell.
The bitcoin bubble of 2017 may be the product of the purest speculation in history. That year, the cryptocurrency burst into the public eye. Few people know how these currencies work, and fewer actually use them. Everyone wants cryptocurrencies. At the beginning of 2017, Bitcoin was priced at less than $1,000. By December 2017, the price of bitcoin had soared to nearly $20,000.
Bitcoin’s craze didn’t last long. None of these booms lasted long.
‘If you’re looking for a reasonable explanation, you might be able to open a spreadsheet, enter the full numbers of Tesla or any such asset, apply a function designed to calculate exponential expansion, and draw a chart, ‘ Mr. Cecchini said. Or you can just look at their excessive speculation, he says. “You can explain it in math, but you don’t need to explain it by math to know it’s ridiculous, ” he says. “