Tesla’s (TSLA) Wild Friday ..Overblown?

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02:33:02 am on January 18, 2012

I was away from the market Friday and getting caught up with all the latest today.  Looks like I missed quite a day for Tesla on Friday with the stock plummeting 20% on news two key engineers working on the Model S left the company. 

It appears based on today’s quick recovery that fears of internal turmoil may be overblown.  The Fool has a great run down on the events, I’ll summarize here.

Initially the company including Musk dismissed the report as overblown, but decided to do a conference call following the big move lower ahead of today’s open.  The PR move worked well with the stock gapping up big and nearly closing the entire gap on Friday’s loss.

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According to Musk, the two engineers were important to the Model S development but one was not the head engineer as Bloomberg reported and they were not responsible for the initial design but rather optimizers. .. specifically finding ways to reduce weight without compromising safety.  Musk went on to say that their departure wasn’t unexpected as the company scaled to higher volume production and that the real problem was with how their departures were communicated.  He acknowledged it should have been done sooner before the earnings call which is when the company had planned to announce it.  Bloomberg got out in front and created an impression that Tesla wanted to dump the news on a Friday afternoon in addition to reporting the inaccuracy. 

More importantly Tesla indicated they are on track with the Model S and that extensive crash and safety testing continues.  The plan to use many small batteries instead of a few larger ones will improve safety and help avoid the issues the Volt has had.  The company highlighted the fact that the more than 2000 Tesla’s, some of which have been in serious accidents, haven’t had fire issues.  It plans to launch the Model S with a five star rating in all crash testing.

In my experience, these kind of events where there is some management credibility issue or some uncertainty related to news, a stock is weighed down for a period of time.  If you had the guts to jump in at the lows Friday, that was a heck of a trade, but I’d avoid it up here for a few weeks to a few months and see how this all plays out.  Technically, shares of TSLA are still in a basing period and below both key support areas of the 50 and 200 day moving averages, so no reason to get in at current levels.   Wait for the dust to settle.

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