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Tesla Stock: Elon Musk and SEC Legal Battle Takes a Toll

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Since 2011, Tesla (TSLA) stock has yielded positive yearly returns in all of the years except in 2016. In 2016, the company unveiled Model 3—its first mass-production electric car. Tesla also acquired SolarCity in a $2.6 billion deal. Execution issues, including Model X production delays, hurt investors’ sentiments and the stock fell 11.0% in 2016. Now, we’ll see why 2019 is turning out to be even worse than 2016 for Tesla stock.

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Pessimism in 2019

So far, 2019 has been challenging for Tesla. The stock fell 7.7% in January and recovered slightly by 4.2% in February. As of March 19, Tesla has fallen 16.4% month-to-date. The stock is underperforming the broader market by a large margin. During the same period, the S&P 500 Index and the NASDAQ Composite Index (COMP-INDEX) have risen 1.7% and 2.5%, respectively.

On YTD (year-to-date) basis, Tesla has lost ~19.6% compared to the 13.0% and 16.4% gains in the S&P 500 Index and the NASDAQ Composite Index, respectively. Other auto companies (IYK) including General Motors (GM), Ford (F), Fiat Chrysler (FCAU), and Toyota (TM) have risen 14.4%, 13.7%, 4.5%, and 3.1%, respectively in 2019. In contrast, NIO (NIO) has fallen 6.4% YTD.

Elon Musk versus the SEC

In 2018, Elon Musk, Tesla’s CEO, had to step down as the company’s chairman. The SEC charged Musk with securities fraud for misleading tweets. As a part of the settlement with the regulatory authority, Tesla was required to “put in place additional controls and procedures to oversee Musk’s communications” including Musk’s tweets.

Musk’s obsession with Twitter led him into more legal trouble with the SEC in February. The SEC asked the court to hold Musk in contempt for his tweet on February 19. While the legal battle between Musk and the SEC continues, it’s hurting investors’ sentiments and driving Tesla stock down in March.

Musk is known to overhype any product launch or offer related to Tesla, which we’ll discuss in the next part.

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