Introduction
Recently, The Wall Street Journal reported on allegations of illegal drug use by Tesla CEO Elon Musk. This news has left investors questioning the potential implications for Tesla’s stock performance.
Serious Allegations
According to the report, Musk has been accused of using various drugs, including LSD, cocaine, ecstasy, ketamine, and psychedelic mushrooms. These allegations have raised concerns among shareholders and the market as a whole.
Tesla’s Silence
Despite numerous requests for comment, Tesla has remained silent on the matter. It is unclear how the company plans to address these allegations or if they will issue any statements regarding Musk’s alleged drug use.
Musk’s Response
Key-Person Risk
For Tesla shareholders, stories involving Musk always come down to the concept of key-person risk. This risk refers to the potential negative impact on an organization when something happens to a crucial member. As the CEO, Musk holds significant importance within Tesla. His role in pioneering the electric vehicle revolution and heavily investing in self-driving technology has propelled him to become the wealthiest person on the planet.
Previous Considerations
In the past, investors had to evaluate key-person risk when Musk acquired Twitter (now X) in 2022. At that time, Roth Capital analyst Craig Irwin highlighted the intertwined nature of Tesla and Musk, emphasizing that any issues affecting Musk’s public perception or diverting his attention away from Tesla could potentially impact Tesla’s share value.
Overall, as investors await further developments regarding the alleged drug use by Elon Musk, concerns about key-person risk and its potential implications on Tesla’s stock performance remain at the forefront. The market will undoubtedly keep a close eye on any updates from Tesla regarding this issue.
The Impact of the X Purchase on Tesla Stock
The Tesla stock experienced a noticeable impact following the X purchase. In addition to concerns about management distraction, investors faced the challenge of Elon Musk selling billions in Tesla stock to finance the deal. When large blocks of stock are anticipated to be sold, it can potentially depress the share price, making it less appealing for buyers.
Between mid-April 2022 when Musk made the offer for X and the end of the year, Tesla stock dropped by approximately 62%. While some of this decline can be attributed to the X purchase, it was also a challenging year for tech stocks overall. The Nasdaq Composite, for example, saw a decline of approximately 22% during the same period. However, as of the start of Monday trading, Tesla stock has seen a remarkable 110% increase over the past 12 months. In comparison, the S&P 500 and Nasdaq Composite have risen by approximately 21% and 37% respectively.
It is difficult to determine a definitive rule about how stories regarding Musk can impact Tesla stock or how certain events, such as the drug-use story, will unfold. Musk has been involved in other controversies, including his response to a tweet containing anti-Semitic content on November 15. Following this incident, Tesla stock dropped by around 1% over a span of 10 days, while the Nasdaq experienced a slight increase of approximately 1% during the same period. Musk reflected that he strongly denies holding any anti-Semitic beliefs in an interview on November 29.
Given past experiences, investors should prepare for potential stock volatility. It is possible that Tesla’s stock performance may lag behind major indexes by a few percentage points in the coming days. However, even with negative headlines surrounding Musk, Wedbush analyst Dan Ives believes that Tesla investors have developed immunity to these news stories at this point.
