TSLA: Stuck in an SEC rut
By Paul Reid
07 September 2023
The lengthy bearish trend that started with a steep dip on July 23 and ended on August 18 resulted in a 28% fall from $297 to $213. Since then, a 22% rebound to $260 could be viewed as the beginning of a recovery, but now might not be the best time to buy.
Tesla is under investigation by Manhattan federal prosecutors and the Securities and Exchange Commission (SEC). The New York federal attorneys are looking into whether Tesla intentionally misrepresented the battery range of its electric vehicles. Previous reports have suggested that Tesla cars often fall short of the company's advertised range, raising concerns about the accuracy of its marketing.
In addition, federal prosecutors are seeking information regarding Tesla's expenditure on a secret project in greater Austin, Texas. This project is reported to be a spacious glass house, believed to be intended for Elon Musk's personal use. The inquiry aims to determine whether Tesla's resources were misappropriated for the CEO's personal benefit.
Impact on stock prices
Reasons for a loss of investor confidence can vary. Ongoing regulatory scrutiny can divert management attention from core business operations, potentially impacting the company's ability to execute strategic plans and achieve growth targets.
Legal cases and investigations involving high-profile companies like Tesla can have a significant impact on stock prices. Legal probes can introduce uncertainty into the market, causing investors to become apprehensive. Uncertainty, in turn, can lead to decreasing demand for the stock, resulting in stagnant or sideways price actions, or even a decline.
Tesla previously faced an SEC investigation in 2018, after Elon Musk's tweet about taking Tesla private at $420 per share triggered concerns of securities fraud.
While Tesla and Musk wrestled with the SEC, the TSLA price line flattened as investors paused to see how the case would play out. Eventually, Musk was required to step down as chairman, and Tesla got back to business as usual. After the dust settled, TSLA rocketed a staggering 3200% from $12.34 to an all-time high of $407.36.
Tesla's current legal challenges, including probes into resource misuse and battery range claims, have the potential to impact the company's reputation and stock price. They could introduce market uncertainty and lead to sizable financial burdens.
Investors will closely monitor coming legal developments to assess potential implications for Tesla's stock performance. TSLA is at a bargain price compared to the previous two years, which may tempt some traders. Follow the legal battle as a large investor might, and be ready to react to news that will feed sentiment.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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