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Photo Illustration: Sarah Grillo/Axios. Photo: Jörg Carstensen/picture alliance via Getty Images

Tesla stock has been in Ludicrous Mode for the past few days. Given its bonkers gyrations, it's now easy to see why CEO Elon Musk might feel that he was right all along in wanting to take the company private back in 2018.

"As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone."
— Elon Musk, "Taking Tesla Private" blog post, August 2018

How it works: Tesla's rising share price this year has been good for Musk's pay package and his wealth, but it has also turned the stock into an arena for short-term, high-stakes gamblers.

  • In the first three days of this week, $157 billion of Tesla stock changed hands. For gamblers, it was more popular than Bitcoin, which saw $96 billion of volume in those three days. Tesla even approached the $198 billion of volume in SPY, the benchmark S&P 500 ETF that's the most popular playground for day traders.
  • Compare Apple, with its awesome $1.4 trillion valuation: It had $107 billion in volume over three days, much less than Tesla, which is worth roughly a tenth as much.
Expand chart
Chart: Axios Visuals

The stock market is failing at its primary role of price discovery, the determination of how much securities and companies are worth. There's no rational reason — and certainly no news — explaining why Tesla's value should have fluctuated by more than $20 billion per day.

  • This wasn't a short squeeze like the famous VW run-up in October 2008, when the German carmaker briefly became the most valuable company in the world. In that case, the quantity of shares available to buy was much lower than the amount that short sellers had sold. But in this case, even if all the Tesla shorts were forced to cover their positions at the same time, that would account for less than one day's trading volume.
  • Other possible explanations like delta-hedging call-option volume (don't ask) similarly can't come close to explaining the magnitude of the price swings and high volume that Tesla stock is seeing.

Be smart: A stock that can melt up for no particular reason can just as easily melt down.

When the share price is as volatile as this, valuation feels more like a sugar high than the true wisdom of the crowds, and a buy-and-hold strategy feels like utter foolishness. Hedge fund manager Cliff Asness has argued that the price opacity of private markets has significant positive value. If that's the case then Tesla in particular should probably be private.

Flashback: Musk said in 2018 that he wanted to take Tesla private at $420 per share, which corresponded to a valuation of $76 billion. At the time, that was a significant premium to the open market price.

  • The bull case for Tesla is predicated on the company raising another $10 billion in equity capital, plus possibly much more than that in debt. Public investors don't like that kind of dilution, but a private investor willing to buy the company for $76 billion in 2018 would probably be happy to put another $10 billion in right now.

The bottom line: If Tesla is going to be a vehicle for speculators, it should be one in which they sit behind the wheel, rather than one they buy on the Nasdaq.

Go deeper

58 mins ago - Health

Pfizer-BioNTech: Booster doses more effective at blocking Omicron

Prepared doses of the BioNtech-Pfizer Covid-19 coronavirus vaccine in Germany on Dec. 7. Photo: Thomas Kienzle/AFP via Getty Images

Pfizer and BioNTech said Wednesday that two doses of their COVID-19 vaccine were significantly less effective at neutralizing the Omicron variant in early lab tests, but a three-dose regimen was more effective.

Why it matters: Omicron, which has been labeled a variant of concern by the World Health Organization after being identified by scientists in South Africa last month, has forced vaccine makers to reassess the effectiveness of their vaccines against this specific new form of coronavirus.

Mike Allen, author of AM
1 hour ago - Politics & Policy

Biden unveils "Building a Better America" branding

President Biden speaks on infrastructure while visiting a bridge in Woodstock, N.H., last month. Photo: John Tully/Getty Images

President Biden today launched a new website and unveiled bold new branding as part of a nationwide tour to sell the benefits of his infrastructure package.

Why it matters: The White House says passage of the new law shows the ability to "forge bipartisan consensus and prove our democracy can deliver big wins" even in these toxic times.

3 hours ago - World

Olaf Scholz sworn in as German chancellor, succeeding Merkel

Incoming German Chancellor Olaf Scholz is sworn in by Bundestag President Bärbel Bas in Berlin today. Photo: Sean Gallup/Getty Images

Social Democrat Olaf Scholz was sworn in as chancellor of Germany on Wednesday, succeeding Angela Merkel after 16 years and launching a new era of German and European politics.

Why it matters: Scholz, a center-left pragmatist who served as finance minister and vice chancellor in Merkel's last government, will lead Europe's largest economy in a coalition with the environmentalist Greens and pro-business Free Democrats.

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