For Tesla Stock, A Story About Elon Musk’s Drug Use Means Volatility

Tesla didn’t respond to a request for comment. In the story, Musk’s attorney Alex Spiro said the CEO is “regularly and randomly drug tested at SpaceX and has never failed a test,” adding “there are other false facts” in the story without being specific.

Tesla, Musk, and Spiro had not responded to a Barron’s request for comment about the WSJ article at the time of publication.

For Tesla shareholders, stories about Musk generally boil down to key-person risk. That is the risk of something happening to an important member of any organization. The CEO is almost always the most important person to an organization, but Musk is a special case. Pioneering the electric vehicle revolution, as well as investing heavily in self-driving technology, has made him the richest person on the planet.

Investors had to consider key-person risk when Musk purchased Twitter, which is now X, in 2022. “Tesla is Elon Musk,” said Roth Capital analyst Craig Irwin at the time, reflecting on how issues impacting Musk’s public perception or taking some of his time away from Tesla could impact Tesla shares.

The X purchase did appear to impact Tesla stock. Along with worries over management distraction, investors had to deal with Musk selling billions in Tesla stock to fund the deal. Large blocks of stock, that investors know are coming, can depress any share price. No one wants to buy stock ahead of a big sale.

From the time Musk made an offer for X in mid-April 2022 until the end of the year, Tesla stock dropped about 62%. Some of that was likely X-related, but it was a tough year for tech stocks. The
Nasdaq Composite
was down about 22% over the same span. Coming into Monday trading, Tesla stock is up 110% over the past 12 months. The
S&P 500
and Nasdaq Composite are up about 21% and 37%, respectively.

There is no good rule of thumb for ranking how stories about Musk can impact Tesla stock, or how the drug-use story unfolds. Musk has been embroiled in other controversies, including his Nov. 15 response to a tweet with anti-Semitic content. Tesla stock dropped about 1% over the 10 days after the tweet. The Nasdaq was up about 1% over the same span. Musk strongly denied holding anti-Semitic beliefs in an interview on Nov. 29.

Based on past experiences, investors should brace for some stock volatility. Tesla stock could underperform major indexes by a few percentage points over the coming days.

“It’s not the headlines investors want to see but ultimately Tesla investors are immune at this point to the negative Musk headlines,” says Wedbush analyst Dan Ives.

At least until they aren’t.

Write to Al Root at [email protected]