Tesla closed at an all-time high of $193.37 on Sept. 30. At the time, the stock was up over 470% year-to-date.
However, the stock has been getting walloped, falling by 17% this week. It's now down 27% since the Sept. 30 all-time high. And today, it's trading at around $136.
So, what's gone wrong?
The first big blow to the stock came from a Tesla Model S that caught fire after colliding with a large metallic object on Washington State Route 167, in early October. This raised all sorts of concerns about battery safety.
In its 10-Q Tesla has pointed out that the lithium ion battery cells "have been observed to catch fire or vent smoke and flame, and such events have raised concerns, and future events may lead to additional concerns, about the batteries used in automotive applications."
Unfortunately for Tesla there were two other fires. A Tesla Model S caught fire in Mexico after the car crashed through a concrete wall and into a tree. And another fire was reported on a Tesla Model S this week in Smyrna, Tenn.
Tesla has repeatedly pointed out that these fires were the result of accidents and were not "spontaneous," but battery concerns have weighed on the stock. CEO Elon Musk took to the Tesla Motors Blog to defend his car. "For consumers concerned about fire risk, there should be absolutely zero doubt that it is safer to power a car with a battery than a large tank of highly flammable liquid," Musk wrote.
Investors and traders also punished Tesla after its earnings report. The company delivered 5,500 Model S vehicles in the third quarter and said it's producing 550 cars per week. While this is up from 5,150 deliveries in the second quarter and a production rate of 500 vehicles per week, this fell short of analysts' expectations.
Because the company is still young, investors are focused on vehicle deliveries over performance on the bottom line.
Elon Musk has repeatedly tried to quell concerns by arguing that these delivery numbers were a function of supply, not demand. "We really are production constrained, not demand constrained," he said. The main constraint on production has been the battery cells.
But investors are just as antsy about the supply chain as they are about demand for the product. The recent agreement with Panasonic to produce 2 billion lithium-ion battery cells through 2017 has helped alleviate some of the concerns. But there are other supply chain bottlenecks that some analysts argue could be its biggest risk over time.
Then there is the stock's valuation.
NYU finance professor Aswath Damodaran says Tesla is worth a fraction of its current price.
"We believe that there has understandably been significant profit-taking over the last few weeks by investors that have made substantial returns over the last 6 months," Galves explains. He thinks "investor turnover may continue."
"Sellers unleashed about 31 million shares in Tesla Motors midweek," Andrew Wilkinson of Miller Tabak pointed out following the Q3 earnings release.
The last two times we saw such volume, shares closed lower but "subsequently rose despite the high-volume sell-offs," Wilkinson told Business Insider. "Question is whether or not this time its prospects are more sinister."
Tesla has arguably been the biggest momentum stock of the year, but it looks to be stumbling now. This comes at a time when many momentum trades are fading.
Musk told Bloomberg TV, "we're going to do our best to fulfill the expectations of investors and I think, in the long-term, that stock price is going to seem fair. It's difficult to predict where it goes in the short or medium-term but I do feel good having the company achieve that value and more in the long term."
While the company has disruptive technology that gives it "the potential to be at the leading edge of a paradigm shift in transportation," as Galves points out, there are still numerous risks to be aware of: The company's production chain is one, long-term demand is another, and cash generation another, to name a few.
Until investors can realize the long-term value, Tesla might be whipsawed by speculators.
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