Money Matters - Simplified

Tesla Motors' Shares Plunged: What You Need to Know

 Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.


 What: Shares of electric-vehicle maker Tesla Motors(Nasdaq: TSLA) sank as much as 13% in early Monday trading as the 180-day lock-up agreement from its IPO expires.

So what: Last week, Morgan Stanley estimated that the end of the lock-up period, or the point when insiders can start selling on the open market, couldtriple the number of Tesla shares available for trading. So when you combine that potential surge in "supply" with the fact that Tesla shares are up significantly since its IPO, it's easy to understand investors' concerns.

Now what: I wouldn't be so quick to pounce on today's plunge. Double-digit declines over imagined insider dumping aren't worth getting worked up about, but when you consider that Tesla lacks any real scale to compete against green-focused giants Ford (NYSE: F) and Nissan, I know I'd be selling at the first opportunity. With skepticism steadily growing on Wall Street about just how fast Tesla will be able to grow, Mr. Market might not be ready to support the flood of new shares.

© 2010 UCLICK L.L.C.