The Top 3 Reasons Shares of Tesla are Crumbling

Tesla is in freefall.

Shares are extending losses after its Model X recall, a $2 billion secondary stock offering, and after revealing they were issued with a new subpoena from the U.S. SEC relating to “certain financial data and contracts, including Tesla’s regular financing arrangements.”

US SEC Issues Subpoena

Tesla’s latest 10-Q noted:

“On December 4, 2019, the SEC (i) closed the investigation into the projections and other public statements regarding Model 3 production rates and (ii) issued a subpoena seeking information concerning certain financial data and contracts including Tesla’s regular financing arrangements.  Separately, the DOJ had also asked us to voluntarily provide it with information about the above matters related to taking Tesla private and Model 3 production rates.”

While the revelation of the inquiry spooked investors, it doesn’t automatically mean TSLA is guilty of any wrongdoing.  It’s far too early to tell with any certainty.

Tesla is Selling New Shares to the Public

In another filing, TSLA announced it would sell about 2.7 million shares to the public, which would raise about $2 billion.  All to “further strengthen our balance sheet, as well as for general corporate purposes,” as quoted by Barron’s.

Selling stock is a great way for the company to capitalize on its soaring stock price.  However, it can also signal that management believes the stock is fully valued, as also noted by Barron’s.  

Analysts at Wedbush note, “It’s a smart, strategic move.  It takes any doomsday scenario around cash crunch… off the table,” as quoted by CNBC.  The firm has a neutral rating on the TSLA sock with a $710 price target at the moment.

Tesla Recalls 15,000 Model X SUVs

The company is recalling the SUVs to replace a part that could potentially lead to a power steering failure.  Reportedly, the bolts connecting the power steering component to the steering ear can corrode and fracture, says Fox News, which could lead to a loss of power assist.

The recall impacts vehicles built prior to October 2016.