Tesla (TSLA) shares on Wednesday fell by 5.6%, coming to a halt after a five-session rally where the shares rose by over 27%. This was the biggest surge in Tesla's stock value since the boost it received from investor enthusiasm following Trump's election victory in November. Prior to last week's rally, Tesla shares had plunged by over 50% from their all-time highs recorded in December, largely due to declines witnessed in February and early March.
Several factors contributed to this drop. Tesla struggled with shrinking sales in key markets, such as Europe, despite an increased demand for electric vehicles. Besides, the company dealt with a backlash from vandals unhappy with CEO Elon Musk's political clout and concerns from fervent supporters about Musk overextending himself with his corporate and government roles.
Nonetheless, Tesla's stock price does not always mirror the health of its electric vehicle (EV) business. This was evident when William Blair analysts maintained their outperform rating on the stock while cutting their full-year vehicle sales estimate by more than 10% on Wednesday.
The analysts affirmed their faith in the company due to the promising development of the MegaPack, Tesla's industrial-scale energy-storage product, and the announced roll-out of ridesharing this year. They cited that Tesla's stock trading has often "been a function of momentum" and expressed optimism about the stock's pullback.
Meanwhile, Musk and his allies have embarked on a damage-control initiative. President Trump voiced his support for Musk on Truth Social, and even indicated his intention to buy a Tesla. The Commerce Secretary, Howard Lutnick, urged Americans to invest in Tesla stock on a TV show last week, while Musk encouraged employees to retain their stocks during a company meeting.
Tesla's upward trend kicked off following the Federal Reserve's economic outlook update, forecasting two interest rate cuts this year, and reports about the Trump administration weighing the limitation of its planned tariffs. Amid the recent slump, retail investors have reportedly been buying Tesla stocks at a record pace.