Why is the Tesla share price dropping? Elon Musk-owned company stock selloff explained

The share price of Tesla has plunged in recent weeks

Friday, 5th March 2021, 3:55 pm
The share price of Tesla is tumbling (Getty Images)

The price of Tesla is plummeting, dropping 6% in the first two hours of trading on March 5.

A favourite with retail traders, shares in the electric vehicle manufacturer rose dramatically from November to February, reaching a high of $900.40 a share.

This price has spiked downwards significantly in recent weeks, however, dropping as low as $580 on March 5.

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So why is the share price of the Elon Musk-owned giant dropping so rapidly?

Why is the Tesla stock price dropping?

There are a number of reasons for the share price downturn.

The electric vehicle’s enormous share price was regarded as overinflated by some investors, the market cap was higher than the 9 largest automakers combined, and many have been anticipating a market correction.

Last month Tesla’s price could partly be attributed to its investment in Bitcoin.

The firm invested $1.5bn (£1bn) in the often volatile cryptocurrency.

Its thought that investors sold shares following a drop in Bitcoin’s value earlier this week.

Analyst Dan Ives of Wedbush Securities said that the fates of the two companies were now tied together.

He said: “by Musk and Tesla aggressively embracing Bitcoin... investors are starting to tie Bitcoin and Tesla at the hip.”

"The recent 48-hour sell-off in Bitcoin and added volatility has driven some investors to the exits on this name in the near-term."

Tesla also recently pulled the Model Y SUV citing desires to boost the entry-level model’s range.

Why are tech stocks struggling?

Tech stocks have endured a tough few weeks with the tech-heavy Nasdaq dropping by 2.5% on March 4.

This drop came after Federal Reserve chairman Jerome Powell said that the economic reopening would cause inflation.

Speaking at the Wall Street Journal Jobs SUmmit he said: "We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects. That could create some upward pressure on prices.”

In response to his comments the 10-year Treasury yield spiked.

Speaking to the Wall Street Journal, Tom Martin, senior portfolio manager at Globalt Investments explained that the dip was due to “general nervousness about the rise in interest rates.”

He added: “clearly today we’re back at favouring value over growth and that makes sense in the context of today’s change in interest rates.”