At the end of January, Tesla released its Q4 earnings report for 2021, and it seemed like everything was going well. The clean energy company beat its predictions for earnings and revenue, while high numbers of vehicle deliveries suggested demand remained high. However, things now appear to have taken a turn for the worst; The end of February brought in news that the SEC had accused Musk of insider trading.
Tesla’s stock price took a hit at first, but it’s now showing some signs of recovery thanks to other factors at play. What will the likely impact of this controversy be, and how could it impact the future outlook for the Tesla stock?
Insider Trading Scandal
When it comes to this case, the finer details of who is at fault might be complex, but the bare bones of what happened is simple enough to explain in a few words. Elon Musk’s brother Kimbal Musk sold $108 million worth of Tesla shares one day before Elon Musk tweeted a poll asking the world if he should sell his own 10% stake.
As anyone could have predicted based on the track record of Musk’s tweets, the poll sent stockholders into panic, resulting in a dip in the Tesla stock price. Musk did indeed decide to sell many of his shares, which decreased prices further.
Insider trading laws are in place to ensure that individuals who have “insider knowledge” of what could happen to the market — such as employees or shareholders — don’t use that to earn profits. If Kimbal Musk knew that his brother planned on making a tweet that would decrease Tesla’s share price, the two siblings would indeed be guilty of insider trading.
What it Means
The U.S. Securities and Exchange Commission has started investigating the case to see if insider trading occurred, as reported recently by the Washington Post. Although news only emerged recently, the process likely began a few months ago as Musk sent out the tweet at the start of November.
Following the incident, the SEC also sent a subpoena (which compels someone to attend court to give their testimony) to Tesla.
At this point, it’s unclear whether Kimbal Musk was aware his brother had intentions to place a poll on Twitter or if it was just a (fortunate) coincidence. Investigators have to figure out precisely that.
Tesla’s track record doesn’t help its cause. Elon Musk has a history of being involved in scandals, and many also accused him of market manipulation when he tweeted about bitcoin and dogecoin in 2021. Insider trading claims date back to 2018 when Musk got in trouble with the SEC for tweeting about his intentions to make Tesla a private company, which the organization claimed was misleading.
Musk and his company believe the whole ordeal is a targeted campaign against them.
Tesla Stock Price History
Before we look at what Tesla’s future holds, let’s rewind for a second.
It’s no secret that Tesla has been one of the major success stories over the past decade. The price of Tesla stock has increased from around $89 in 2019 to its all-time high of $1,222 by the end of 2021.
However, Tesla’s value was already dwindling when January 2022 came, and it fell even further when the news of the insider-trading scandal broke at the end of February. The Tesla stock reached $764, which was its lowest point since September 2021.
Admittedly, this isn’t the only reason for a price decline. The whole stock market has been in turmoil over the last few weeks due to the events going on around the world. The situation with Russia and Ukraine has led to uncertainty about gas prices, which impacts all other areas of the economy — even a clean-energy company like Tesla isn’t immune.
Precisely what’s next for Tesla stock is hard to predict.
The Future Outlook for Tesla
Plus, the insider trading scandal isn’t the only issue that Tesla has faced over the last few months. The company also received accusations about its mistreatment of black workers, who say that they’ve experienced harassment and bullying at work.
The Department of Fair Employment and Housing (DFEH) in California has filed a lawsuit against Tesla. The suit is just one case of many over the last few years, with various employees saying they’ve suffered similar experiences when working for the electric vehicle giant.
Considering that Tesla has found popularity among a progressive demographic who want to believe they’re investing in something that will positively impact the world, these (arguably) morally questionable accusations could harm its brand and curb its growth potential. It’s hard to say for sure, but the stock price seems closely related to public opinion.
Tesla recently hit the headlines for humanitarian efforts by providing SpaceX’s Starlink terminal to Ukraine and free Supercharging services to refugees fleeing the warzone. Could this be part of the reason for the recent price recovery?
After its initial fall, Tesla stock managed to go from $764 on 23 February to over $864 at the start of March — that’s quite the jump.
The company likely has a rocky future ahead, and the results of its various investigations will be significant, but overall the picture still appears positive.
A Turbulent Time for a Turbulent Company
It seems that Musk and the rest of his company have their work cut out for the next few months as they try to get back on track with public opinion. The rest of the world will no doubt be watching them closely. It’s fair to say that Tesla isn’t quite out of the danger zone, but it’s far from out of the running — recent events may turn out to be a tiny blip in its growth path.
Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Tim Thomas has no positions in the stocks, ETFs, mutual funds, forex, or commodities mentioned.
This was produced and syndicated by Tim Thomas / Timothy Thomas Limited.
Featured image credit: Unsplash.