To many people, the idea that Tesla’s stock price would rise and fall with the price of oil seems silly. After all, why would someone with $90,000 to spend on a car decide the cost is not justified because gasoline is a bargain? Strangely enough, this correlation actually does exist to some extent. It is likely based on widespread belief among investors that declining oil prices actually do impact demand for Tesla’s purely electric automobiles. The popularity of this notion results in a self-fulfilling prophecy effect, with Tesla’s share price performing in the manner expected by many investors.

The easiest way to observe the extent of this correlation is by visiting StockCharts.com, or any other charting website, to prepare a chart that tracks the performance of Tesla Motors, Inc. (NASDAQ: TSLA) and the spot price of Brent Crude oil. An 18-month chart depicts Brent making a relatively steady decline during the last half of 2014. Nevertheless, Tesla’s share price can be seen making a modest advance from $238.93 on Nov. 4, 2014 to $259.99 on Nov. 18, 2014, with Brent finding support at $79.41 per barrel. From there, Tesla shares retreat as Brent swoons through the first half of December.

Oil Price Concern Trumps Tesla’s Fundamentals

Tesla’s December 2014 fade seems surprising in the wake of the company’s Nov. 5, 2014 report, indicating third-quarter earnings of 2 cents per share on revenue of $932 million, which exceed analysts’ estimates of zero cents per share on revenue of $893.8 million. More surprisingly, the chart shows TSLA dropping below its 50-day moving average on Dec. 1 of that year, falling from $241.16 per share to $231.64. From there, the chart depicts TSLA shares falling to a low of $192.65 on Dec. 17, before rebounding sharply to end the session at $205.82.

The trading action depicted for April 2015 demonstrates Tesla shares rising from $187.59 on April 1 as Brent begins the month at $57.10 per barrel, stair-stepping its way toward a high of $69.63 on May 6. From there, Tesla extends its advance to $280.02 by July 2, despite Brent’s gradual retreat to $62.20 per barrel by July 1.

Tesla’s Second-Quarter Revenue Disappointment

By early August 2015, there is no longer a discrepancy between Tesla’s fundamentals and its share price performance. A summer swoon by Brent Crude is depicted on the chart as a steady decline from $61.80 on July 2 to $42.48 on Aug. 24. Tesla’s share price works its way through a bearish, head-and-shoulders pattern during that same time frame, resulting in an Aug. 24 closing price of $218.87. This represents a 21.83% retreat from its July 2 closing price. More importantly, TSLA’s 8.88% nosedive on Aug. 6 can be explained by the disclosure of its disappointing second-quarter revenue of $1.2 billion, missing analysts’ estimates of $1.19 billion. Incidentally, the chart provides concurring Aug. 24 dips for both Tesla and Brent, followed by abrupt rebounds for both during Aug. 25 to Aug. 28.

Although the chart demonstrates a decline in both Tesla’s share price and the price of Brent Crude during July through mid-August of 2015, Tesla’s retreat can be explained by the company’s second-quarter revenue disappointment.

Throughout the month of September, the chart has Brent in a consolidation pattern, grinding through the range of $47 to $49 dollars per barrel. Meanwhile, Tesla is establishing another bearish, head-and-shoulders pattern, followed by a slump to $215.58 on Oct. 12. During that same period, Brent is seen climbing from $48.26 per barrel on Oct. 2 to a high of $54.29 on Oct. 9. After a month of correlation, Nov. 12 marks the beginning of significant divergence, with Brent working its way down to $36.36 per barrel on Dec. 22, compared with Tesla’s 7.39% advance during that time.

Despite the fact that there is a good deal of correlation between the spot price of Brent Crude oil and Tesla’s share price, close examination of a chart comparing the market performance for both reveals occasional divergences. As oil prices reach their lowest level in 11 years, Tesla’s share price on Dec. 22, 2015 is almost exactly at its Dec. 22, 2014 level. Declines in crude oil prices do not always guarantee drops in Tesla's share price.

Widespread belief that cheaper oil and gasoline would adversely impact Tesla sales is likely rooted in the rationale discussed by Professor Robert Stavins of Harvard University. Lower gasoline prices reduce consumer demand for vehicles with higher fuel efficiency. The important distinction in this case concerns the fact that higher fuel efficiency is not what motivates consumers to purchase Tesla automobiles. Instead, it is the decision to purchase a vehicle powered by clean electricity rather than fossil fuel.

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