TLDR
- Tesla stock dropped 0.9% to $418.01, ending six consecutive days of gains
- Elon Musk’s $1 billion stock purchase and robo-taxi expansion previously drove rally
- Fed expected to cut rates 0.25%, potentially boosting auto sales through lower financing costs
- Technical indicators show overbought conditions as RSI reaches extreme levels
- NHTSA investigating Model Y door handles while Tesla settles fatal crash lawsuits
Tesla stock fell 0.9% to $418.01 in Wednesday trading, breaking a six-day winning streak that had added 22% to the share price. The electric vehicle maker’s recent rally came to a halt as investors turned attention to the Federal Reserve’s upcoming interest rate decision.
The stock had been on fire lately, gaining approximately $75 over six consecutive sessions. CEO Elon Musk’s $1 billion stock purchase, disclosed Monday, helped fuel investor enthusiasm for the EV maker.
Tesla’s robo-taxi expansion plans also supported the rally. The company appears ready to launch its self-driving taxi service in Las Vegas after successfully rolling out the service in Austin, Texas in June.
Fed Rate Cut Could Boost Auto Sales
The Federal Reserve is expected to announce a 0.25% rate cut at 2 p.m. ET Wednesday. This would lower the target fed-funds rate to between 4% and 4.25% from the current 4.5% to 4.75% range.
Lower interest rates typically benefit automakers like Tesla. Most car purchases involve financing, and reduced rates translate to lower monthly payments for consumers.
However, the widely anticipated nature of the rate cut may limit any positive stock reaction. Tesla shares have already surged more than 20% in recent days, potentially pricing in the expected policy change.
Technical Warning Signs Emerge
Tesla’s 14-day relative strength index has reached overbought territory, suggesting the recent rally may have pushed shares too high too quickly. Wednesday’s weakness could represent profit-taking ahead of the Fed announcement.
The stock’s volatility remains extreme compared to other major companies. Tesla shares have traded between $212 and $488 over the past year, creating a $276 range representing 65% of the current price.
For perspective, Apple’s comparable volatility measure is less than 40%. This highlights Tesla’s dramatic price swings compared to other large-cap stocks.
Regulatory Challenges Mount
The National Highway Traffic Safety Administration opened an investigation into Tesla’s 2021 Model Y door handles. The probe examines whether the electrically powered handles are defective and will assess Tesla’s power supply reliability.
Tesla has also agreed to settle two lawsuits related to fatal 2019 crashes involving its autonomous driver-assistance software. The settlements follow an August Florida jury verdict awarding $243 million in damages to Model S crash victims.
Both cases had trials scheduled for October. The resolution removes potential legal uncertainty but highlights ongoing safety concerns around Tesla’s technology.
Tesla shares have gained 4% year-to-date after turning positive during the recent rally. The stock is up 85% over the past 12 months, reflecting strong investor interest in the EV maker despite periodic setbacks.
Retail sentiment on Stocktwits remained extremely bullish at 89 out of 100, with message volume also extremely high. Analysts expect Tesla to beat third-quarter delivery estimates, supporting the bullish outlook.
The current trading reflects investors weighing Tesla’s growth prospects against technical overbought conditions and regulatory challenges.
