Elon Musk Tweets, Tesla Investors Listen — On All Kinds Of Things

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The “Teslanaires” are investors who have clung to Tesla’s clean-energy mission, riding out numerous storms — production obstacles, CEO Elon Musk’s tirade of tweets, and the covid-19 economic turmoil — and thrived financially. The stock was up 695% in 2020, making many long-term holders very rich in the process. In December, 2020, Tesla joined the S&P 500 Index, and, since then, Forbes argues, the company has embraced retail investors like no other publicly traded enterprise. Musk tweets helped to foreground the company’s successes, for sure.

Tesla’s combined electric-car/clean-energy/technology business, however, had a sudden value drop last week, with investors seemingly rethinking a pandemic comeback based on Big Tech and switching to cyclical stocks. Some experts suggested the plummet was all about interest rates, or those rapidly rising yields on the US 10-year Treasury notes and the companion 30-year Treasury bond. Fears are that those increasing yields, which are a consequence of an improving economy and greater pricing pressures, will prove too much competition for stocks.

With rising Treasury yields, stocks have fluctuated violently, often closing near session lows. Shares of Tesla (TSLA) fell 60 points by Friday, February 26, 2021 — but then, it should be noted, bounced back 43 points today. The Fool reports that, during the massive drop, Cathie Wood, “a raging Tesla bull,” bought another $120 million worth of shares for Ark Innovation ETF — Tesla shares had already comprised 10% of that fund before the price drop. Long-term investors like Wood rationalize that buying a stock during a downturn is an approach to add position in a company.

The recent reduction in Tesla’s stock price clearly made additional Tesla stock purchases tempting to certain investors.


Not everyone is convinced, however. Warren Buffett recently invested billions in big oil, resulting in a massive $4.1 billion stake in Chevron. Tesla’s mission to accelerate the world’s transition to sustainable energy baffles many analysts who are accustomed to companies that create superficial mission statements and rarely have procedural followup and implementation. Tesla’s corporate culture challenges analysts who focus on legacy auto, making them predisposed to believe that Tesla isn’t truly competitive. Yet retail investors who don’t have the same experience with the ingrained legacy auto culture seem to look at Tesla’s efficiency and productivity and see the company in positive terms.

The old adage that “all economics is an illusion” refers to the human cognitive bias to think of money in nominal, rather than real, value terms. To say this another way, what we think of as the real purchasing power of our money at the current moment in time is based on a series of subjective criteria related to a whole bunch of our prior knowledge, beliefs, and experiences. Versions of this theory have been promoted by Keynes and Fischer and continue to be debated in social discourse today.

Wavering illusions about the value of our stock portfolio manifested last week as Tesla and other green tech stocks have dipped, and surely rebounded for investors who held through the period and through Monday. What’s the right way to go with this kind of thing? Is the lowest Tesla stock price since its entrance into the S&P a good time to invest? Or have Treasury yield fears been complicated by a series of Musk’s tweets? Clearly, the Musk tweets influence investor decision-making. Should investors who’ve been following Musk’s daily tweets join the march toward (hopefully) becoming a Teslanaire? Or is there a bubble that’s starting to leak?

Musk Tweets Offer Investor Insights, However Tenuous

Musk has promoted various stocks and cryptocurrencies on his Twitter feed quite vociferously in 2021, an account which currently has more than 47 million followers. Earnings growth and valuations sometimes seem less important to investors than Musk’s most recent areas of interest.

  • Shares of GameStop (GME) brightened on January 27, one day after a Musk tweet that read simply “Gamestonk” and included an embedded link into Reddit’s WallStreetBets group.
  • Polish video game developer CD Projekt Red spiked after Musk wrote a series of tweets on January 27 and 28 about the company’s Cyberpunk 2077 game.
  • Canadian e-commerce firm Shopify rose after Musk called it “great” and said SpaceX used it.
  • Etsy moved higher after Musk wrote about buying something for his dog on the site.
  • The price of crytpocurrency Dogecoin spiked following Musk’s many positive tweets about it, or joking about it.
  • Bitcoin surged after Musk added a (fleeting) #bitcoin to his Twitter bio.
  • A Musk tweet to “use Signal” prompted investors to buy up shares of Signal Advance, a tiny tech company that makes medical detection devices. Its stock promptly collapsed after the confusion cleared up.
  • Shares of a Canadian gold miner named Sandstorm also briefly popped more than 50% in premarket trading on February 4 after Musk tweeted that “Sandstorm is a masterpiece.” Others presumed he was simply referring to the Darude song.

While Musk’s Twitter actions have had a particularly pronounced affect this past week, or month, this is simply a continuation of a long-growing trend. He’s been shifting stocks and cryptocurrencies for a while now.

Research into the impact of Musk tweets on cryptocurrency markets through applying event study methodology showed the impact of 6 Twitter events from 2020 and 2021 on return and trading volume of the mentioned cryptocurrency. Across all events, significant increases in trading volume were attributable to the events. So, without a doubt, individual tweets can have a significant influence on returns and trading volumes.

Musk’s social media influence is proven and has had some very real consequences for Tesla and its investors. Of course, whether or not Musk should tweet as much as he does is an open question, as is the idea whether people should make investment decisions based on those tweets. What is clear is that Tesla management is firm in its belief that it can increase deliveries year over year at a rate of 50% and can see 50% annual growth for many years to come, so profitability will continue to improve.

Tesla delivered ~500,000 vehicles in 2020 amidst a pandemic, which was its target before anyone knew a pandemic and economic shutdown were coming. There are so many reasons to believe in Tesla. It’s the leader in the global electric vehicle market and a significant influencer in the autonomous app-based taxi market. Whether to invest or not right now in Tesla must take into account that a very optimistic business view is already priced into Tesla shares. No one can accurately determine, with full certainty, where the stock will be in a year from now.

What is likely is that the stock will continue to experience more volatility, and shareholders must be ready for an energetic and occasionally unsettling ride.

 



 


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