Shares of Tesla, the Palo Alto electric car company, plunged 15% Monday. That day marked the end of the lockup period, during which insiders are prohibited from selling shares.
Yesterday, the stock crept back up two percent, and as of right now shares have increased almost another six percent. But the stock is still down about 35 percent from its high of last month.
The big drop in price was widely speculated on in advance. From the web site VentureBeat, Dec 23:
Venture capitalists invested in Tesla upfront have incentive to sell their shares because it lets them lock into profits, but at the moment, they’ve got a huge portion of the holdings, so new shares hitting the market are relatively high compared to the number of shares already on the market. In fact, Morgan Stanley projects that shares available for public trading will triple on Monday.
Traditionally, the increased supply after a lockup period means the price comes down. Simply economics of supply and demand, right? But Tesla’s stock doesn’t always obey the rules. Despite posting losses in the third quarter — granted, smaller than expected losses — the stock closed at a record $33. And its blockbuster IPO — a $17 June offering that jumped 40.5 percent in the first day of trading – happened in the midst of a lackluster cleantech IPO season. And in a practically unheard-of aberration, the IPO bucked market trends with a successful debut the same day the Nasdaq and S&P had their worst days of the year.
“It’s definitely trading on sentiment,” says Eric Jackson, founder of hedge fund Ironfire Capital. He predicts the stock will trade down to the mid-20s in coming weeks.
Nat Goldhaber, managing director at venture capital firm Claremont Creek Ventures, agrees.
“Cars are sexy. It’s almost just about that. They got enough public attention early enough on. They had physical product that was kind of cool,” Goldhaber told me recently, referring to Tesla’s Roadster sports car. “[Cars are] the thing that captures the American imagination. It’s valued disproportionately to its actual utility.”
In June, the web site GigaOm posted a rundown of top Tesla shareholders, pre-IPO. Some of these people are probably a lot richer today. But maybe not quite as much as you'd think. In February, Wired reported that the Dept of Energy, as a condition for loaning the company $465 million, requires that co-founder and board chairman Elon Musk, as well as some other insiders, must own 65% of their original shares until at least one year after completion of Tesla's Model S, due in 2012. If they sell more than that, the loan will be in default.
- How Elon Musk Turned Tesla Into the Car Company of the Future (Wired, Sept 27)