Here’s why Tesla stock is crashing

Though it had its fair share of troubles throughout 2024, even being the worst-performing S&P 500 stock at one point in the year, Tesla Motors (NASDAQ: TSLA) experienced two major rally catalysts in the last 30 days.

In fact, TSLA shares gained so much positive momentum that they are up 41.72% in the last 30 days. Still, one of the same events that led to the mid-term rally also triggered Tesla stock’s most recent drop – Donald Trump’s presidential election victory.

Specifically, the November 14 news that the incoming Republican Administration is planning to ax the $7,500 electric vehicle (EV) tax credit triggered a 5.77% 1-day drop for TSLA to its latest closing price of $311.18.

The downward momentum was likely strengthened by Tesla shares’ generally strong recent performance, as corrections tend to follow strong rallies. It even persisted into the Friday pre-market.

Still, though TSLA stock is another 0.76% down in the extended session to its press time price of $308.81, the negative momentum has been waning, and there is a possibility the EV maker’s shares will open higher than they closed on Thursday.

Why Tesla stock’s latest drop was not unexpected

The immediate negative reaction and the weakening of the downtrend both follow the earlier analyses of the impact a Trump re-election could have on EV companies.

The incoming Republican administration was long foreseen as offering headwinds to the industry between the proposed tariff increases – a policy that could disrupt global supply chains and further increase the price tags of already pricey EVs – and a greater focus on fossil fuels in accordance with the ‘drill, baby, drill’ slogan.

How Tesla could still benefit from the incoming administration

Simultaneously, Tesla was predicted to benefit from such a situation since, despite being affected by the headwinds, its size and prominence would give it a distinct advantage over its West-based competitors, as Wedbush’s tech analyst Dan Ives pointed out.

Looking at market capitalizations alone, Tesla is a $1 trillion company, Rivian (NASDAQ: RIVN) is valued at $10.51 billion, and Lucid (NASDAQ: LCID) at $6.26 billion. 

Furthermore, though Elon Musk’s EV maker will likely also be hit by the tariffs, American and European protectionist policies targeting Chinese firms will simultaneously shield it from its biggest rivals: companies like BYD.

Lastly, considering the number of investigations Tesla and Musk’s other companies – including probes over deaths caused by vehicles with ‘full self-driving’ (FSD) engaged – there is a reasonable expectation the likely Republican deregulation program will clear the way forward of many roadblocks. 

Still, given the lacking demand amidst the ‘EV winter’ of 2024, there are no guarantees the latest TSLA stock downturn will truly end quickly as the removal of the tax credit will eliminate a major incentive for Americans to switch to electric vehicles.

Featured image via Shutterstock