Tesla (TSLA) Stock Whipsaws

The carmaker's shares set an all-time high and then declined on recall news

Much like the company's irascible CEO, who flits between company updates, poetry, and cryptic pronouncements on social media, the stock price for electric carmaker Tesla, Inc. (TSLA) also gyrates to an unpredictable beat.

On Monday, Nov. 1, Tesla stock raced to an all-time high, surging by 8.5% to close the day at $1,249.59. The next day, it had slid to $1,191, down by almost 2%. The volatility in Tesla's stock occurred days after it joined an exclusive club of companies that have crossed $1 trillion in market capitalization, vaulting its CEO Elon Musk atop the world's richest list.

Key Takeaways

  • Tesla stock is in decline after a day during which it rose by 8.5% and set a record high.
  • The company announced that it was opening up its charging network to other EV providers.
  • The primary culprit for Tesla's drop Tuesday was a recall of nearly 12,000 vehicles due to a faulty update of its driver assistance software.
  • Tesla's stock gyrations are not a new development.

At the end of trading on Monday, Nov. 1, Tesla had a market capitalization of $1.21 trillion. As of this writing, it is down to $1.19 trillion.

What Caused the Latest Volatility in Tesla Stock?

As usual, a barrage of daily news developments about the company makes it difficult to identify a single factor for Tesla's price swings. However, the most likely contributor to Monday's pop may have been Tesla's decision to open up its network of charging points, also known as the supercharger network, to competitors in Europe.

The company's decision enables non-Tesla drivers in Europe to use its charging points while paying higher prices and boosting the company's bottom line. Andrew Baglino, the company's senior vice president, told analysts during a July earnings call that the decision to open up the network "actually reduces our costs, which allows us to lower charging prices for all customers, make the network more profitable, allows us to grow."

Some also speculated that delivery numbers from China, Tesla's biggest market, also contributed to the jump in its valuation. NIO Inc. (NIO), a leader in the Chinese electric vehicle (EV) market, reported a staggering decline of more than 7,000 in the total number of vehicles delivered. But XPeng Inc. (XPEV) delivered more than 10,000 vehicles in October for the second straight month. Observers say that XPeng's results are good news for Tesla watchers because it means that China's EV market is still thriving. Tesla reports its China October numbers next week.

A Drop After the Pop 

It was a different story Tuesday, Nov. 2. Tesla's stock price fell 5% in pre-market trading and has continued its downward trajectory after the markets opened. Many news developments Tuesday morning contributed to the reversal.

First, Tesla CEO Musk clarified that his company had not yet signed a contract with car dealer Hertz Global Holdings, Inc. (HTZZ) to sell 100,000 of its EVs. Then, Tesla announced that it was recalling nearly 12,000 vehicles due to a software update to its driver assistance Fully Self-Driving (FSD) software that resulted in false activation of the car's emergency braking system.

The National Highway Traffic Safety Administration (NHTSA) said that Tesla has uninstalled the previous version of the software (FSD 10.3) and released an updated version (FSD 10.3.1) for the affected vehicles. NHTSA also stated that it would "continue its conversations with Tesla to ensure that any safety defect is promptly acknowledged and addressed." The company's Autopilot feature is already under investigation by the NHTSA.

Recent volatility in Tesla's stock price is a continuation of an ongoing story that started at the beginning of the shutdown. Investors and traders have poured money into the company after it reported record deliveries and revenues amid a crippling supply chain crisis and chip shortage that has hampered production in multiple industries. Increased urgency around climate change and a regulatory pivot toward electric vehicles and renewable energy have further boosted Tesla's stock price and sent it skyrocketing to become the world's most valuable car company.

However, the carmaker's continued entanglements with regulators over the safety of its EVs and problems with scaling its operations across continents have dampened this path, resulting in precarious slides in its growth trajectory. Some also believe that the stock is overvalued. In his program on CNBC yesterday, Jim Cramer referred to Tesla as a "phenomenon" that "seems to go up endlessly on nothing."

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