Why is Tesla Stock Dropping So Much?

Tesla is one of the most valuable companies in the world, and anyone from regular ol’ people all the way up to wealthy investors has an opinion (and maybe a few shares) of the company. Over the course of its existence, there has been a lot of change and hype surrounding Tesla, some good and some bad. As a result, public opinion on the company is rather fickle, and the resulting stock price has drifted through its history. Today, we are going to take a look at why Tesla stock dropped so much, plus a bit as to where it is today. Let’s get started.

Reaching great heights

Before we get into the two most recent drops in Tesla’s stock price, it’s important to understand how it got there in the first, place. For most of Tesla’s history, it traded nearly horizontally, meaning that its price fluctuations were minor and it stayed extremely consistent. At its IPO (initial public offering) in 2017, Tesla was listed around $20 a share. This remained somewhat consistent until the end of 2020, the things really started to get exciting.

2020

The exponential growth of Tesla during 2020 isn’t attributable to one thing, but a few. First is its valuations. January 10th was a big day for Tesla as it was given a valuation of $86 billion, breaking records for US automakers handily. Only a few months later in June, the market valuation of Tesla reached something around $180 billion.

At the same time these valuations were happening, Tesla was rolling out vehicles en masse for the very first time. Deliveries had happened before this, but now the company was really starting to scale. The Model Y deliveries began in March 2020, and the first 400-mile range vehicle was announced. By the end of December 2020, shares were topping $235. Even more, popular interest in the company brought a flood of retail investors (regular people not associated with an institution) to invest in the company. This influx of buyers allowed Tesla to outperform the over $40 billion in shorts (people betting against the company via the stock market). Once these shorts expired, the stock jumped even further in a maneuver known as a “short squeeze”.

2021

Entering 2021, Tesla was poised to have a great year. By June, the first Model S Plaid vehicles were being delivered, hundreds of thousands of Model 3s were being delivered, and the company was opening Gigafactories left and right.

Once October rolled around, and people began spending more money post-pandemic, Tesla really hit its stride in terms of stock growth. On October 25th, Tesla received a $1 trillion valuation and had a stock price surpassing $350 a share. In December, the company moved its headquarters to Texas and continued to deliver hundreds of thousands of vehicles a quarter.

This, however, was the peak that Tesla would hit before it began to fall. Entering November and December, Tesla reached an ATH (all-time high) surpassing $400 a share. From here, the decline began.

Why did Tesla stock start dropping after November 2021?

Anything that goes up must come down, right? Well, entering 2022, Tesla began to experience its first real drops in regard to its stock price. Again, there isn’t a single factor that caused the price to experience its decline, but a conglomerate of world events, internal problems, and publicity errs.

World Events

Probably the most important element for Tesla’s overall negative price action is the world events. The start of 2022 was the start of the first large drop for Tesla — and most everyone else. The Russia-Ukraine conflict, rising interest rates, slowing demand due to a looming recession, and issues with the supply chain all began in 2020. Each of these has had a drastic impact on the market as a whole, not just on Tesla. Here’s proof:

Tesla’s losses have left it consistently ranked as the sixth-biggest detractor from the performance of all three this year after Microsoft (MSFT), Apple (AAPL), Meta Platforms (META), Amazon.com (AMZN), and Nvidia (NVDA). It is the fifth-biggest company by market cap after Apple, Microsoft, Alphabet (GOOG), and Amazon.

Morningstar

A Distracted CEO

On top of problems at a global scale, worry surrounding the company’s (in)famous CEO continued to mount. Musk has always been a bit of a lightning rod, but recent events surrounding Twitter seemed to further sink investor confidence in his ability to steer the $650 billion dollar ship that is Tesla. During the second half of the year, Musk announced his intentions to purchase Twitter, a deal which has officially finalized after a whole lot of hullabaloo from both sides. For many investors, Musk was already stretched thin, and tossing Twitter on top of the pile that already included SpaceX, Tesla, Neuralink, and The Boring Company could be the company that breaks the CEO’s back.

Tesla: A New Hope

Although there has been a lot of worry surrounding Tesla and its stock price, there is something important that needs to be mentioned: Tesla’s figures for the year have been really strong and consistent. Despite all the worry about “Russia this” and “bear market that,” the actual revenue and delivery numbers coming from the company have been quite strong. In fact, Tesla beat EPS (earnings per share) and revenue estimates for nearly EVERY QUARTER this year, while only slipping once on revenue when Q3 posted a few days ago.

On top of performing well in the face of global fear, Tesla has continued to do the thing they have to keep doing — delivering cars. In Q3 2022 alone, over 343,000 vehicles were delivered and 365,000 were produced.

This shows us that there are some clear worries surrounding the company as is reflected in the current stock price, but they clearly aren’t slowing down any time soon. Yes, Tesla’s share price experienced quite the drop in 2022, but it looks like they are still poised to continue making more electric cars, batteries, and whatever else Musk dreams up than anyone else in the world.

Our Summary

Tesla experienced a price drop of nearly 50% since its all-time high nearly a year ago. This was most likely due to a combination of global worry and events, waning trust in Elon Musk (the CEO), and lower consumer spending heading into 2023.

Here’s some more detail:

• The war in Ukraine caused issues in the global economy that even Tesla couldn’t avoid. As we near (hopefully) the end, this will have less of an impact on the market at large.
• Musk’s acquisition of Twitter has finally been completed, but investors need to see leadership and clearheadedness from him if Tesla wants to continue to attract the suits on Wall Street. A distracted CEO bodes ill for a company already facing scrutiny.
• As we head into the end of 2022, interest rates and fear are at all-time highs. When people are scared and don’t have money, they don’t buy luxury electric vehicles. The future economy will have a part to play in Tesla’s stock price stability in the coming months.