Five reasons why Tesla’s stock is down

Electric car company Tesla Motors has seen its stock drop pretty significantly over the last three months. From a high of more than $291 on September 4, to its current trading price of around $223 Friday, Tesla has lost more than 20 percent of its value over three months.

This is not necessarily cause for too much alarm. The stock has always been a bit volatile and many stock owners believe in Tesla’s long-term value over its short-term value. But to help explain why the stock has sputtered, here are five reasons it’s been down recently:

Tesla owners take a ride in the new Tesla “D” model electric sedan after Elon Musk, CEO of Tesla, unveiled the dual engine chassis of the new Tesla ‘D’ model, a faster and all-wheel-drive version of the Model S electric sedan, at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

1. Tesla’s stock has been overvalued. For the volumes that Tesla produces, and for the early stage of its life, Tesla’s stock has been significantly overvalued over the past two years. From its IPO at $17 per share in 2010, the stock has risen more than 1,400 percent to reach that high in September 2014.

Tesla CEO Elon Musk has acknowledged this repeatedly over the past year, most recently at a news conference in September right after he announced that Nevada would get the battery factory. Musk said at the time, “I think our stock price is kind of high right now … If you care about the long term, Tesla, I think the stock is a good price. If you look at the short term, it is less clear.”

A recently raised spot of land in the Tahoe-Reno Industrial Center

2. Battery factory is a sizable risk. While Tesla’s huge battery factory has been the subject of breathless media attention, there’s actually a lot of risk involved with setting up such a massive factory and meeting battery production and cost expectations on time and budget.

That’s partly because of the sheer size of the factory, but also because it will be a sort of industrial park under one roof, where Tesla will work with Panasonic and various other companies that will make the batteries’ anodes, cathodes, and separators. Tesla will produce the battery packs and be the landlord, but will be coordinating with the other companies in its space. Working closely with suppliers in this way could take time to get right.

However, the reality is that Tesla would not be able to make its third-generation car at the price it wants and in the way it wants if it didn’t build this factory. Tesla and Elon Musk are “leaning in” to the battery problem, so to speak, adding more risk, instead of looking to mitigate risk to solve the issue.

Tesla factory floor.

3. Tesla growing pains: For all that Tesla has achieved, it has had some growing pains over the past few months as it tries to ramp up production of the Model S and move closer to launch of its next cars.

Tesla has delayed the launch of the Model X many times, most recently in its last earnings on November 5. It also revealed that it wasn’t able to ramp up production of the Model S as quickly as it had expected during the third quarter, so it was going to miss its annual production guidance for the year.

Growing pains are to be expected for a small car company trying to transition into a much bigger one. But I would expect these little speed bumps to sway the stock in the short term.

Tesla CEO Elon Musk launches the Tesla D.

4. The D underwhelmed. While the Tesla D — the souped-up dual-motor, all-wheel-drive version of the Model S that can go zero to 60 in just over three seconds — is undoubtedly cool, Tesla’s stock slumped immediately after its launch in early October. I think stock watchers were used to more disruptive and buzzy technologies out of Tesla, like the Model X with its eye-popping new doors, or Tesla’s hyped-up super charger-network. To me, the D indicates that Tesla wants to monetize its current Model S platform even more, now that the Model X is delayed. Will the third-gen car be delayed as well?

One of several Volts on the floor at a conference in 2012.

5. Growing competition. While there aren’t many companies that are effectively competing against Tesla’s Model S category right now, car companies continue to launch new models that could be more competitive in the future. GM is launching its next-generation Volt next year, and the original Volt is the bestselling electric car in the U.S. in total over time, with 70,531 units sold to date. Toyota and Honda plan to launch new fuel cell electric cars next year. BMW is trying to become more competitive after the launch of its i3. Nissan has done pretty well with its LEAF electric car, but it’s a shorter range, cheaper, urban car, compared to the Model S.