Why Tesla Stock Fell Tuesday

What happened

Shares of electric-car company Tesla (NASDAQ: TSLA) took a hit on Monday. The stock fell nearly 8% by 2:06 p.m. EDT

The decline follows a report from Reuters that alleged Tesla CEO Elon Musk was aware of financial troubles at SolarCity before he made a case to investors to approve an acquisition of the company.

Tesla's new low-profile solar panels

Tesla's low-profile solar panels. Image source: Tesla.

So what

Musk "urged investors to approve the 2016 purchase of SolarCity at a big premium to its market value despite knowing the solar installer faced a cash crunch and publicly stating he had recused himself from involvement in the deal, according to court documents unsealed on Monday," Reuters wrote this week.

The allegations were brought to light in a lawsuit by Tesla shareholders, which alleged that the automaker breached fiduciary responsibilities to investors when it approved the acquisition of SolarCity at a $2.6 billion price tag.

Of course, some of the stock's pullback on Tuesday is likely the result of a broader-market sell-off of growth stocks. Many mega- and large-cap growth stocks are trading at least several percentage points lower on Tuesday.

Now what

Tesla investors should keep an eye on this developing story. A negative outcome in this lawsuit could taint investors' view of Musk and Tesla's board.

On the other hand, investors should keep in mind that Tesla's solar business is a very small part of the company's total operations. It will likely be the automaker's performance in electric vehicles that will make or break the stock's long-term performance, not its solar business.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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