Tesla (TSLA) Rout Continues

Shares fall almost 17% in two days on concerns over possible block sale by CEO

A decline in share prices for Tesla, Inc. (TSLA) that started on Monday accelerated into a double-digit figure rout on Tuesday, plunging the electric car maker's valuation and resulting in its biggest price crash in the past 14 years. Panicked investors sold the company's shares and shaved $199 billion off its valuation. 

By the end of trading on Tuesday, Nov. 9, Tesla shares were trading at $1,023.50, down 12% from the day's start. Since Monday morning, the stock has plummeted by almost 17%. On the morning of Wednesday, Nov. 10, the stock was changing hands for $1,010, down another 1.2% in pre-market trading. The nosedive in Tesla's valuation in the past two days has also erased $50 billion from Musk's personal net worth on the Bloomberg Billionaire's Index.   

Key Takeaways

  • Electric car maker Tesla's stock price has fallen by 17% in the past two days and erased $199 billion off its market capitalization.
  • Tesla's shares began tanking after CEO Musk held a Twitter poll over the weekend to discuss whether he should offload 10% of his holdings in the company.
  • Board members and a senior executive at Tesla sold part of their holdings in the company before Musk's weekend tweet.
  • Tesla remains a trillion-dollar company.

Why Did Tesla Stock Go Into a Tailspin? 

According to reports, the reason for investor panic on Monday was a cryptic Twitter poll by CEO Elon Musk over the weekend. He asked his followers to vote on whether he should sell 10% of his holdings, some of which are in the form of options that expire next August, in the company. At Friday's closing prices, 10% of Musk's holdings amounted to roughly $20 billion. A majority of his Twitter followers voted for him to make the sale.

Musk claimed that his tweet was driven by concern about the current administration's aborted proposal to tax unrealized gains. But reports maintain that Musk is on the hook for a massive tax bill if he does not sell the options before they expire. 

Michael Burry, founder of Scion Asset Management, also hopped onto the Tesla news cycle and tweeted that Musk was selling stock to service personal loans he had taken out by using Tesla stock as collateral. Burry was reported to hold 1.1 million put options on Tesla shares in August.  

Spooked by the poll's results and effect on Tesla's stock price of a possible block sale by Musk, traders drove down the company's share price by 4.8% on Monday. 

Morningstar analyst Seth Goldstein wrote that the sell-off on Tuesday was driven by Nvidia Corporation's (NVDA) announcement of new technologies for the self-driving capabilities it sells to automakers. "Nvidia sells AV [automated vehicle] technology to multiple automakers, including Tesla, and plans to sell its new AV tech for vehicles in model year 2024. Nvidia's success would help to normalize AV technology, increasing the market size as a whole. However, the increased competition could reduce Tesla's AV technological advantage and weigh on long-term growth," wrote Goldstein. 

The two-day plunge in Tesla shares may have driven down the company’s valuation, but it remains a trillion-dollar outfit. In spite of the heavy decline, its shares are also up by 29% in the past month. The company added $440 billion to its valuation in the past month alone.

But some say that Tesla's valuation is still inflated. Matt Portillo, analyst at Tudor Pickering, told Bloomberg that Tesla stock is "extremely overvalued from a long-term perspective." He added that the recent declines were "an excuse to pull back a bit."

Insider Sales 

The timeline and logistics of a possible sale of Tesla shares by Musk are still unclear. Meanwhile, his brother (restaurateur Kimbal Musk), Tesla board member Robyn Denholm, and Andrew Baglino, a senior vice president in the company, have beaten the Tesla CEO to the punch in offloading their holdings in the company for hefty profits. They sold before Musk's weekend tweet.  

According to SEC filings, Kimbal Musk sold 88,500 Tesla shares on Nov. 5 at prices ranging from $1,233 to $1,236. He had acquired the shares for $74.71. Tesla board member Robyn Denholm sold 25,000 shares of the company on Nov. 1 at prices ranging from $1,130.92 to $1,147.312. The SEC filing states that she acquired the shares at a price of $52.38. Senior executive Baglino sold 1,000 Tesla shares on Oct. 29, when its price was hovering just above a thousand dollars.

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  2. Business Insider. Michael Burry Says Musk May Want to Sell His Tesla Holdings To Cover Personal Debt. Accessed Nov. 10, 2021.

  3. Yahoo Finance. "Nvidia Promises Fully Self-Driving Cars With Nvidia Tech." Accessed Nov. 10, 2021.

  4. Morningstar. "Tesla Shares Fall for a Second Day as Competition Emerges." Accessed Nov. 10, 2021.

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