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Why Tesla Stock Dropped, Then Popped Today

What happened

Tesla (NASDAQ: TSLA) stock is bouncing around like an electric car on a long gravel road this morning. Down 3.1% as of 9:40 a.m. ET, Tesla soon recovered all its losses, and even began marching toward a 2% gain -- before slipping back toward zero again.

Down again, up again, where will Tesla stock end the day?

Image source: Getty Images.

So what

The answer to that question probably depends on which Tesla story dominates -- and we've got three Tesla stories warring with each other to capture investor imaginations today.

Story 1: The law firm. Tesla got hit with negative press this morning when The Wall Street Journal reported that the company just got caught pressuring its law firm, Cooley LLP, to fire an associate who had formerly worked for the Securities and Exchange Commission (SEC) -- and participated in that agency's 2018 investigation of Elon Musk and his famous 420 tweet. Cooley coolly declined to fire its employee, and now Tesla is retaliating. It "has stopped using Cooley for regulatory work" and is "taking steps in several cases to replace Cooley or add additional counsel."

Story 2: The price target hike. This one's more straightforward. In a note today, investment bank Credit Suisse raised its price target on Tesla stock to $1,025 a share. That's a 23.5% hike from CS's previous price target, and the banker is also predicting Tesla will announce better-than-expected profit margins in its fourth-quarter earnings report due out next week.

Story 3: Europe. Last but not least, the European Automobile Manufacturers Association just released data on passenger car registrations in Europe, which is a big market for Tesla, accounting for up to 30% of annual revenue, according to data from S&P Global Market Intelligence. While the data isn't specific to Tesla, it's probably not going to be good news, with new car registrations down 23% in December -- the "sixth consecutive month of decline," reports

Now what

What does all this add up to for Tesla? On balance, I'd say today's news is somewhat negative for Tesla stock, although Credit Suisse's price target tweak is least significant. (It suggests earnings improvement, which is good news, but even so, the new price target is below where Tesla stock trades today.)

Weaker car sales overall in Europe is obviously not great news for carmakers, but until we know how Tesla performed relative to its competitors on the continent, I wouldn't overreact to this news.

Most concerning to me is Tesla's arm-twisting encounter with Cooley. "Bullying" isn't a good look for Musk, and this could tarnish Tesla's own reputation with the public. Furthermore, if the company is specifically targeting former government employees for harassment, this incident could come back to haunt Tesla in future regulatory run-ins with, for example, antitrust officials or traffic safety agencies or -- of course -- the SEC itself.

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


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