TESLA shares correlation to other tech giants drops.
Musk’s company has registered a 4% drop in July while Nasdaq is up by 2%.
Pundits blame association with Bitcoin for the dip.
YEREVAN (CoinChapter.com) — If the bearish trends in the cryptocurrency market since May were not enough to worry about, Tesla CEO Elon Musk has to deal with more bad news coming from the stock markets.
Musk’s Tesla Inc. shares have become less correlated with those of other large U.S. technology companies on the Nasdaq 100 list.
Bloomberg reported a drop from 0.83 to 0.14 in the correlation between Tesla’s stock price and the Nasdaq 100 index. The company compared a 20-day correlation from June 17 to July 14.
A similar decline was also found in the relationship between Tesla’s shares and the NYSE FANG+ index. FAANG is an acronym referring to the stocks of the five most popular and best-performing American technology companies. The list includes Facebook, Amazon, Apple, Netflix, and Alphabet (formerly known as Google). Jim Cramer coined the term in 2013.
As reported by Macroaxis, the 3-month correlation between Nasdaq and Tesla is –0.22.
Traditionally, TESLA shares have been highly correlated to the other giant technology companies featured on the stock exchange. However, with the shares of Musk’s EV company losing steam on the correlation index, speculations as to what could be the cause have already started doing the rounds.
It seems one punchbag has already been identified. Bitcoin may be the cause of TESLA’s failed performance. At least one strategist thinks so.
Bloomberg quoted Amy Wu Silverman, a derivatives strategist at RBC Capital Markets, where Silverman claims people don’t appreciate TESLA’s association with Bitcoin. Here is what she had to say,
“When I ask around, the feedback I get is that this is related to their Bitcoin exposure and how it will have to be accounted for when they report earnings.”
According to Silverman, investors do not want to risk inventing in TESLA stocks because they fear the company is too invested in volatile Bitcoin.
Tesla shares are down almost 4% in July, in contrast to the 2% rise recorded by Nasdaq 100. In April, BTC was basking high at $65,000.
Between May 8, when Musk appeared on Saturday Night Live, BTC has registered an over 44% price drop.
It is no secret that Elon Musk has been testing the waters, and perhaps the patience of his investors, with his regular social media gimmicks. The otherwise severe entrepreneur has amassed many fans and critics for his rather childish take on the cryptocurrency market.
Between being a critic and a fan of Bitcoin, fans are still confused about where Musk stands. After having criticized BTC and pumped up DOGE, Musk showered praises for the most significant coin again. “I do at this point think bitcoin is a good thing, and I am a supporter of bitcoin.”, he had remarked. Days later, Tesla disclosed a $1.5 billion investment in Bitcoin.
It also announced it would accept BTC as payment for its manufactured vehicles, which Musk later reversed, citing environmental concerns over Bitcoin mining.
Tesla later sold a portion of its BTC holdings (claimed to be only 10% by Musk) with the promise that it will resume accepting BTC once the company shifts to environmentally friendly mining operations.
Since the bearish markets kicked in, things have gone nose-down for Bitcoin. The world’s largest cryptocurrency has registered stable losses in prices since May. As a result, investors currently see Bitcoin as a volatile asset and want to stir away from betting on it, at least for now.
Since TESLA is so heavily invested in Bitcoin, it could prove to be a red flag for the potential buyers of TESLA stock. Moreover, it may be why the company hasn’t fared so well compared to other tech giants.
Having established why there is merit in what Amy Wu Silverman said, it is necessary to point out that Bitcoin is not solely responsible.
Musk’s non-serious and easy-going attitude towards investors’ money has worked against him. His constant escapades with DOGE and BTC fail to impress serious TESLA investors. As a result, the company could not meet the deadline to roll out the next beta version of its “self-driving” technology. When pointed out, Musk acknowledged on Twitter that he had overestimated his company’s abilities.
Last month, the Chinese Government forced Tesla to recall nearly 300,000 cars in China over cruise control safety issues. The company’s weak sales in the country had worried investors. Between March and April, TESLA registered around a 27% drop in sales in the country. Tesla made up 17% of overall electric car sales in April. It had made up 21% in March.
Other factors, including the delay in the start day of Tesla’s Berlin plant and Elon Musk’s violations of a court order, have also impacted potential investors.
Besides, TESLA’s Bitcoin holdings are only a fraction of the company’s total assets. With a market cap of over $629bn, it is unlikely that Bitcoin has impacted drastically how investors value the company.
Tesla is set to file its earnings report on July 26.
Yerevan-based Editor and writer focusing on topics about cryptocurrencies, NFTs, politics, and international relations. Having completed his Bachelor's and Master's degrees from Delhi's Jawaharlal Nehru University, he currently works as a reporter at CoinChapter.
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