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Why Tesla stock fell sharply on Wednesday

What happened

As of noon EDT Wednesday, shares of You’re here (NASDAQ: TSLA)were trading about 9% lower. The stock, however, was down 14.7% earlier in the day.

The growth stock’s decline likely reflects some investors’ profit-taking after its huge surge in 2019 and 2020. Additionally, some investors may have been spooked by news that the largest institutional shareholder in the electric car manufacturer had reduced its position.

Image source: Tesla.

So what

It’s no surprise that Tesla stock is taking a break. Between August 31, 2019 and August 31, 2020, shares of the automaker jumped 1,000%. Wednesday’s decline was a continuation of a pullback that began on Tuesday, suggesting some traders are taking profits.

It’s also possible Tesla’s sale on Wednesday was partly prompted by news that its largest institutional shareholder, investment management firm Baillie Gifford, had cut its stake in the company from around 6.3% to 5. %. Fund manager James Anderson, however, said in a press release that the move was driven by structural reasons. Tesla shares had become too large a position in its clients’ portfolios, exceeding the company’s concentration guidelines.

Now what

The valuation of Tesla stock has certainly become difficult to justify. Investors should expect the wild volatility to persist due to both its large recent gains and high valuation.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.