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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

Mike Allen, author of AM
3 hours ago - Politics & Policy

Biden adviser Cedric Richmond sees first-term progress on reparations

Illustration: "Axios on HBO"

White House senior adviser Cedric Richmond told "Axios on HBO" that it's "doable" for President Biden to make first-term progress on breaking down barriers for people of color, while Congress studies reparations for slavery.

Why it matters: Biden said on the campaign trail that he supports creation of a commission to study and develop proposals for reparations — direct payments for African-Americans.

Cyber CEO: Next war will hit regular Americans online

Any future real-world conflict between the United States and an adversary like China or Russia will have direct impacts on regular Americans because of the risk of cyber attack, Kevin Mandia, CEO of cybersecurity company FireEye, tells "Axios on HBO."

What they're saying: "The next conflict where the gloves come off in cyber, the American citizen will be dragged into it, whether they want to be or not. Period."

Cedric Richmond: We won't wait on GOP for "insufficient" stimulus

Top Biden adviser Cedric Richmond told "Axios on HBO" the White House believes it has bipartisan support for a stimulus bill outside the Beltway.

  • "If our choice is to wait and go bipartisan with an insufficient package, we are not going to do that."

The big picture: The bill will likely undergo an overhaul in the Senate after House Democrats narrowly passed a stimulus bill this weekend, reports Axios' Kadia Goba.

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