Tesla Stock Is Diving Because Coronavirus May Burst Its Crazy Bubble

• Tesla stock (NASDAQ: TSLA) dove 7.5% on Monday, falling twice as hard as the Dow and S&P 500.
• Tesla has had a turbulent February, with coronavirus fears beginning to eat into its growth.
• Analysts warn that Tesla stock is in a bubble and due for a big correction.

Yesterday’s stock market plunge was especially painful for Tesla. Driven by fears over the coronavirus and by general market bearishness, investors sold off shares in the electric car maker at a staggering pace.

Yet Tesla’s sudden drop is about more than just the coronavirus or the global investment climate. Analysts have long been warning that it’s due a big correction. It looks like the Tesla bubble has finally begun to burst.

Tesla Stock Is Going Down This Year

The 1,031.61 point Dow Jones slide may have dominated the headlines, but that 3.56% sell-off was far less severe than Tesla’s 7.5% hammering.

In other words, Tesla had a much harder Monday than the rest of the market. And it looks like the days and weeks to come will be even harder for the company.

Most experts say coronavirus is the reason why Tesla stock is struggling to secure the gains from its recent rally. The manufacturer has a plant in Shanghai and relies on Chinese suppliers for parts. Consequently, it’s more exposed to Chinese fortunes than other companies.

But for market analysts who haven’t jumped on the FOMO bandwagon – and have looked closely at the numbers – Tesla stock is in a massive bubble.

The Financial Crisis Observatory recently warned that:

Tesla “is a typical Dotcom-like bubble and very dangerous for short-sellers.” It concluded that “a technical correction is inevitable.”

Why? Because Tesla’s fundamentals don’t back up its stock price. With the company still reporting losses even in 2019 , it’s clear that Tesla stock is massively overpriced relative to its current operations.

Tech Stocks Spike When The Economy Is Weak

The coronavirus may end up being the catalyst that makes the stock market finally see Tesla stock for what it is.

That said, Tesla’s rise to market fame isn’t simply the product of hype and social contagion.

It’s the result of a fundamentally weak global economy. The more the “real” economy struggles, the more investors speculatively pump capital into moonshots like Tesla.

Tech stocks are rising at their fastest pace in seven years . This is not good news.

Over the past few years, shares in tech companies have become negatively correlated with interest rates . The rest of the economy isn’t growing strongly, so folks with money have inflated shares in “promising” tech companies to bubble-level proportions. They believe this is the only way they can get a decent return on investment.

Unfortunately, numerous analysts believe that the flight to Tesla stock and other tech shares only masks considerable risks. As Goldman Sachs’ head of global securities research, Robert Boroujerdi, explained in 2017:

We believe low realized volatility can potentially lead people to underestimate the risks inherent in these businesses. The fear is that if fundamental events cause volatility to rise, these same passive vehicles will sell and exacerbate downside volatility.

The coronavirus could be one of these “fundamental events.” So too could be a general market crash, especially when analysts are now predicting a 25% fall.

So maybe it’s time to get rid of Tesla stock now, while the going is still good.