Why the Tesla share price crashed 21% on Tuesday

We examine some of the factors that have potentially contributed to the sell-off in the automaker's stock over the last week.

The Tesla share price collapsed a further 21% on Tuesday – as investor optimism around the automaker continues to wane.

The stock continued to fall in after-hours trade, dropping a further 1.84% to last trade at $324.15 per share. Over the last five sessions the Tesla share price has fallen by ~34%.

A myriad of factors potentially contributed to this recent sell-off, including:

  • General market weakness, particularly in US tech stocks
  • On-market share sales
  • Tesla’s exclusion from the S&P 500
  • Competition concerns

Tesla share price collapses, Nasdaq pulls back

US equity markets have faced heavy selling pressure over the last week – with the Dow Jones Industrial Average, S&P 500 and Nasdaq all falling in that period – in what many have described as a long overdue correction.

The tech-heavy Nasdaq 100 has experienced the brunt of this sell-down – retreating from its recently-made high of 12,439.48 points, to last trade at 11,068.26 points – representing a heady decline of approximately 11%.

Amid this broad market weakness, many US tech stocks – which had seen their share prices run up to stratospheric heights in recent times – have pulled back significantly.

Over the last five sessions Apple has seen its share price fall ~15%, Microsoft has plunged ~10%, Amazon has dove ~9%, and Tesla – the worst hit of those four amid this general market sell-off – has seen its share price crash a staggering 34%.

Despite this recent share price weakness, Tesla is up 283% YTD.

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On-market share sales

Tesla’s recent $5.0 billion on-market share sales – announced in late-August – may have contributed to the recent share price weakness.

In a SEC filing released Tuesday, 8 September, Tesla said it had completed this on-market share sales on September 4, while noting that 'the final settlement of the shares sold is expected to be complete by September 9, 2020.'

S&P 500 exclusion

Beyond general market weakness and Tesla’s share sales, disappointment around Tesla’s snub from the S&P 500 looks to have potentially contributed to the bearish sentiment currently engulfing the company.

In an email exchange with MarketWatch, Daniel Ives, from Wedbush Securities, plainly said:

‘Tesla not getting into the S&P 500 club is a head scratcher and the stock will likely be down for the indexing implications.’

‘The Champagne was on ice to get into the S&P 500, [it] was baked into shares’ – also via market watch

Ives currently has a price target of $380 per share on Tesla, implying modest upside from current levels.

Competitive pressures soon to emerge for Tesla?

Elsewhere, a multi-billion dollar deal between electric vehicle maker Nikola and stalwart General Motors (GM).

Under the deal, it was revealed that General Motors would receive a $2 billion equity stake in the company, representing an 11% ownership of Nikola. In return, it was noted that GM would ‘engineer, validate, homologate and build the Nikola Badger for both the battery electric vehicle and fuel cell electric vehicle variants as part of the in-kind services.’

Nikola expects to make $5 billion in total cost savings as a result of this deal.

Bloomberg described this news as a ‘Match Made in Tesla Hell’, arguing that the GM-Nikola partnership produces ‘formidable competitor’ for Tesla.

How to trade Tesla – long or short

What do you make of Tesla’s recent share price weakness: are you bullish or bearish on the company’s long-term prospects? Whatever your view, you can use CFDs to trade both rising and falling markets, including Tesla and other auto stocks – through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Tesla using CFDs, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘Tesla' in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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