Tesla's stock falls after sell limits are lifted

Shares of Palo Alto electric carmaker Tesla Motors Inc. fell the most since July after insiders were allowed to sell shares in the company.

Tesla shares fell $4.54, or 15 percent, to $25.55 at the close of Nasdaq Stock Market trading Monday for the steepest drop since July 6. Capstone Investments Inc. initiated coverage Dec. 23 with a "sell" rating on the expectation that plug-ins and other hybrids will continue to outsell pure electric cars such as Tesla's.

The end of the lock-up period on Friday allows Tesla's early investors to sell for the first time since the company's June 28 initial public offering. Other holders may have sold in anticipation of insiders' sales, said Carter Driscoll, senior analyst for clean technologies with Capstone. His long-term price estimate is $22 per share.

"A lot of it is the lock-up expiring," Driscoll said Monday. "A lot needs to go right to justify the current valuation. They have never mass-produced cars. They start paying back government loans in 2012."

The Department of Energy loaned Tesla $465 million in March in part to develop its second electric car, the Model S sedan. The car is due to market in 2012. Driscoll said he doesn't expect the company to report a profit or positive earnings before interest, taxes, depreciation and amortization until 2013.

About 7.46 million shares are listed as sold short while 10.3 million shares have been floated to public investors, according to Bloomberg data.

Panasonic Corp., the largest maker of rechargeable batteries, last month bought a $30 million stake. Toyota Motor Corp. and Daimler AG have each invested about $50 million. Chief Executive Officer Elon Musk is the company's biggest shareholder.

Tesla shares have fallen 22 percent since the close of trading on Dec. 22. U.S. markets were closed Dec. 24 in observance of the Christmas holiday.

Khobi Brooklyn, a Tesla spokeswoman, declined to comment on the decline in Tesla's share price.