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Will the Tesla share price keep falling?

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Stack of British pound coins falling on list of share prices
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The Tesla (NASDAQ: TSLA) share price plunged by just under 12% yesterday, extending the company’s losses since the beginning of the week to more than 16%. At the time of writing, the group’s market capitalisation is only just hanging on to the coveted $1trn level after these declines. 

Investors started to dump shares in the electric vehicle (EV) manufacturer after its CEO, Elon Musk, tweeted over the weekend that he would sell $20bn worth of stock to try and refute claims that billionaires pay little-to-no tax. He asked Twitter if he should sell the shares, which would incur a capital gains charge of several billion dollars. 

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Musk’s social media activity has undoubtedly caused a lot of debate.

Twitter debate 

Some analysts have questioned whether or not the CEO is misleading investors because he already has a substantial tax bill falling next year. He faces an upcoming tax bill of $15bn on share options awarded as part of a compensation package in 2012. The analysts argue that he is using the Twitter poll to justify selling the shares to cover this upcoming bill. 

Questions are also being asked about Musk’s personal debt. He reportedly has used 88m Tesla shares to guarantee tens of billions of dollars in loans from banks. Investors and analysts are wondering if he could be selling shares to pay off creditors. 

I should say that, at this point, all of the above is only speculation. The company’s billionaire founder has not confirmed or denied any of the rumours. 

Aside from Musk’s Twitter activity, Tesla’s fundamentals have not changed over the past few days. Demand for the company’s EVs is still running hotter than potential supply. Management is working flat out to open new facilities to increase output. The group is targeting the production of 20m cars a year by 2030, double the production of other large automakers.

What’s more, after years of losses, the organisation is now solidly profitable. It posted a net profit of $1.6bn for the third quarter on revenues of $13.8bn. 

Despite this improvement, I think the Tesla share price has got ahead of itself recently. The stock surged following a landmark agreement with rental company Hertz. It continued to rise even though Musk tried to calm markets with warnings that a contract had not been agreed and it would not help Tesla’s supply issues. 

As such, I do think there is a high chance the stock could keep falling as the market sobers up.

Tesla share price outlook 

However, I also think this could be an opportunity. Considering Telsa’s growth targets and the booming demand for its vehicles, I would be happy to continue buying small amounts of the company shares if the stock continues to slide.

Still, this enterprise might not be suitable for all investors, considering the volatility of the equity and competitive nature of the automotive industry. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Twitter. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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