Please ensure Javascript is enabled for purposes of website accessibility

Why Tesla Stock Fell Sharply on Monday

By Daniel Sparks – Updated Dec 13, 2021 at 7:54AM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Bitcoin's tumbling price and recent weakness in growth stocks may be weighing on the electric car maker's shares.

What happened

Shares of electric car maker Tesla (TSLA 1.73%) are down on Monday. The growth stock fell as much as 5.6% but was down 4.8% as of 10:55 a.m. ET.

Shares were likely down primarily because of a tough day for the overall market and a sharp drop in Bitcoin's price.

Tesla vehicles at a Supercharger station.

Image source: Tesla.

So what

Highlighting the challenging day for the overall market on Monday, the S&P 500 was down 0.6% as of this writing. The tech-heavy Nasdaq Composite was down nearly 0.8%. Tesla stock has now fallen 16% since Nov. 22.

Weakness in Tesla stock may be primarily related to a rough few weeks for growth stocks as investors seem spooked by news of a potential acceleration of the timeline for the Federal Reserve's interest rate hikes. Also potentially weighing on Tesla stock today is a decline in Bitcoin's price. Tesla owns about 42,000 bitcoins -- a large sum in absolute terms but fairly small relative to the company's $16.1 billion in cash and cash equivalents. 

Interestingly, Tesla stock's decline on Monday comes as Time named Elon Musk its 2021 Person of the Year. "In 2021, Musk emerged not just as the world's richest person but also as perhaps the richest example of a massive shift in our society," Time wrote. 

Now what

Tesla stock's sky-high valuation means that shares will generally be much more volatile than the overall market. The stock is priced for significant free cash flow growth over the next 10 years -- and small changes in the market's opinion on how much it wants to pay up for estimates of future cash flows can have a dramatic impact on the way the stock trades. But Tesla has certainly been executing well, with trailing-12-month vehicle deliveries up 87% year over year. This strong business momentum has investors confident in the company's long-term growth potential, helping the stock command a price-to-earnings ratio of more than 300 today.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned and/or Bitcoin. The Motley Fool owns and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.