Why Tesla Stock Popped Then Dropped Today

What happened

Tesla (TSLA 1.65%) stock took investors on a roller-coaster ride Tuesday morning, first rushing ahead 5% before turning tail and giving back more than half its gains — and the day is still young.

Conflicting news items concerning the company, both good and bad, are battling it out to determine the stock’s direction this morning, but as of 10:50 a.m. ET, Tesla stock remains up 2.2%.

So what

Bad news first. In New York, employees at the company’s Gigafactory 2 in Buffalo are attempting to unionize, according to Reuters. If they’re successful, this would be the first Tesla plant in the U.S. to unionize, and could raise labor costs (and reduce profits) for the electric vehicle (EV) pioneer.   

At the same time, in China, Investors Business Daily reports that insurance registrations of Tesla cars in China dropped “nearly 20%” last week, suggesting weakening demand for Tesla’s products in the Middle Kingdom.  

And now the good news. Hedge fund titan George Soros more than tripled his stake in Tesla stock last quarter, buying nearly a quarter-million shares and growing his stake in the automaker to 332,046 Tesla shares.  

Meanwhile, in the latest news from the front of the EV price war, Reuters is reporting that Tesla is continuing to tweak pricing on its cars. The moves secure Tesla the benefit of IRS tax rebates, undercut rival car companies’ prices, and maximize Tesla’s own profits. Specifically, Tesla has cut the price of its budget model RWD Model 3 sedan by $500 (to $42,990), while boosting the price of its most expensive Model Y Performance crossover by $1,000 (to $58,990). IRS tax rebates apply for cars with manufacturer suggested retail prices under $55,000 or vans, SUVs, and pickup trucks under $80,000.

Now what

Tesla is playing a savvy game here. The RWD Model 3 is Tesla’s cheapest electric car offering. Not only is it eligible for a federal tax credit of $7,500, but now CEO Elon Musk is making the car even more attractive to budget shoppers by cutting the price further.

At the same time, less price-sensitive car buyers interested in the costlier Model Y Performance may be enticed to pay up the extra $1,000 knowing that, at less than $59,000, they’re still miles away from the $80,000 price cap that will qualify them for the IRS tax credit.

And of course, with the Model Y Performance still 16% cheaper than what it cost as recently as early January, car shoppers are still likely to see today’s price as a bargain. In fact, they may think it so much of a bargain that they’ll be eager to buy it now before Musk rethinks and raises the prices even more!

Meanwhile, at last report, Tesla was saying EV orders are coming in twice as fast as it can build cars to fulfill them. Investors can probably expect a blowout for both sales and profits the next time Tesla reports earnings.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.