Why Tesla Stock Dropped Again Today

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What happened

Shares of electric car company Tesla (TSLA -4.45%) drove into a ditch on Friday, down 3.5% as of 11:20 a.m. ET. And yes, the whole stock market is in a funk today — frightened by a government report that inflation just hit a 41-year high, the Nasdaq on which Tesla trades is down nearly as much as Tesla itself — 3.2%.

But Tesla has troubles all its own.

Specifically, the National Highway Traffic Safety Administration (NHTSA) announced Thursday that it is expanding its investigation into a series of accidents in which Tesla electric cars, operating on its Autopilot feature, crashed into police cars and other first-responder vehicles stopped on the side of the road.

So what

Some 830,000 Tesla Model S, 3, X, and Y vehicles manufactured from 2014 through 2021 are subject to the investigation and potential recall, reports The Wall Street Journal. The recall itself shouldn’t be too much of a problem for Tesla; even if it happens, the issue being investigated relates to Tesla software that could, in theory at least, simply be deactivated through an over-the-air update.

Of greater concern is the reputational damage to Tesla if the NHTSA determines that Autopilot is defective and should not be used. Should that happen, Tesla will not be able to sell Autopilot functionality on its vehicles until a fix is figured out, potentially costing Tesla a subscription software income stream worth up to $199 per month…times 830,000 cars…equals $2 billion a year in potential revenue.

Now what

And the bad news doesn’t even end there. Remember how last week, Tesla spooked investors with reports that the company might be laying off 10% of its workforce (later revised to reports that it was laying off only 10% of its salaried office workers)? Well, today, Reuters is reporting that Tesla has begun canceling recruitment events for hiring workers in China — its biggest market for electric cars in the world.

Granted, this latest news might turn out to be just as big an exaggeration as the reports of office-worker layoffs were, but between the possible layoffs, the Chinese recruitment slowdown, and earlier reports that Tesla might be conducting stealth layoffs by changing its work-from-home policies, the evidence does seem to suggest that Tesla is seeing a demand slowdown and is adjusting its payroll to compensate.

Investors betting on Tesla continuing to grow at the rates it’s been growing in recent years could be in for a rude surprise.