What happened

After falling as much as 5.7% at one point during Monday's trading session, shares of Tesla (NASDAQ:TSLA) have been rising sharply. They recovered their intraday loss yesterday, ending Monday up about 1%, and then climbed as much as 5.3% on Tuesday. At the time of this writing, they're up about 4%, bringing their total gain this week to approximately 5%.

The gain seems to reflect investors giving more weight to the possibility of Tesla going private at a premium price compared to where shares are trading now.

A red Tesla Model 3

Model 3. Image source: Tesla.

So what

Tesla CEO Elon Musk said earlier this month he was considering taking the automaker private at a valuation of $420 per share. While no formal offer has been made to Tesla's board, there are signs that Musk is working on an official offer.

On Tuesday, news broke that investment bank Morgan Stanley (NYSE:MS) halted coverage of Tesla's stock. The stock's rating changed from "equal-weight" to "not rated" on the company's website, according to Reuters. The investment banker's move to drop coverage of Tesla suggests Morgan Stanley may be working with Tesla in putting together a potential deal to go private. Goldman Sachs (NYSE:GS) similarly stopped coverage of Tesla stock last week and confirmed it was serving as a financial advisor to the company. Additionally, Musk listed Goldman Sachs as one of the financial advisors "on the proposal to take Tesla private" in an Aug. 13 tweet. 

Now what

The likely involvement of both Goldman Sachs and Morgan Stanley -- two major investment banks -- in aiding Musk to put together a deal to help the company go private gives more weight to Tesla's potential privatization panning out.

Of course, even if an official offer is made for Tesla to go private, the deal will be subject to a shareholder vote, regulatory approval, potential negotiations, and likely other formalities.