Why Tesla stock is sliding around 2% on Thursday
News Summary
Tesla's stock fell approximately 1.78% on Thursday after the US National Highway Traffic Safety Administration (NHTSA) opened an investigation into the company's Full Self-Driving (FSD) system. The probe covers nearly 3 million vehicles and cites 58 examples of violations, including vehicles traveling in the wrong direction and running red lights. Despite the investigation, Tesla continues to expand its self-driving and AI initiatives, including a robo-taxi service launched in Austin, Texas, in June. Since that launch, Tesla stock has still risen by roughly 36%, bolstered by growing investor enthusiasm for its artificial intelligence capabilities. This latest probe adds to increased regulatory scrutiny on Tesla's driver-assistance technology, with ongoing investigations into issues related to its doors, Autopilot system, and crash reporting practices. NHTSA investigations can precede recalls, typically involving software fixes. Analysts largely remain optimistic about Tesla's prospects; TD Cowen reiterated a "Buy" rating and raised its price target to $509, while Wedbush analyst Daniel Ives maintained his "Buy" rating with a Street-high target of $600, despite expressing "relative disappointment" with the pricing and features of Tesla's newly launched lower-cost EVs. Ives views the cheaper models as a strategic step to restore quarterly delivery pace to 500,000 units, rather than a product catalyst.
Background
The National Highway Traffic Safety Administration (NHTSA) is the U.S. government agency responsible for ensuring vehicle safety and setting vehicle safety standards. Its mandate includes investigating consumer complaints and accidents related to vehicle defects, with the authority to mandate recalls for vehicles posing safety risks. Tesla has long been at the forefront of autonomous driving technology development, with its Autopilot and Full Self-Driving (FSD) systems being core technological highlights. However, this has also subjected the company to continuous regulatory scrutiny and safety questions. In recent years, NHTSA has conducted multiple investigations into Tesla's driver-assistance systems, including past probes into Autopilot crashes and FSD performance under reduced visibility conditions. In 2025, the expiration of federal EV tax credits in the U.S. has significantly impacted sales strategies within the electric vehicle market. Tesla recently, on October 7, launched two lower-cost electric vehicles – the Model Y SUV ($39,990) and the Model 3 sedan ($36,990) – aiming to offset the impact of the tax credit expiration and address increasing market competition. Concurrently, Tesla is aggressively pursuing new ventures such as its AI and robo-taxi services to maintain a leading position in intelligent mobility.
In-Depth AI Insights
Beyond the immediate stock fluctuation, what are the deeper implications of recurrent regulatory scrutiny on Tesla's FSD strategy and long-term valuation? The ongoing and expanded NHTSA investigation into FSD, particularly with 58 cited violations and coverage of nearly 3 million vehicles, poses a substantial challenge to Tesla's "AI premium" valuation model. - This goes beyond mere software fixes; it could raise fundamental questions about FSD's core safety, reliability, and autonomous decision-making capabilities in complex traffic scenarios. Should regulators impose stricter approval processes or functional limitations, the commercialization path for FSD, especially high-margin robo-taxi services, could face significant delays or increased costs. - Regulatory pressure might also compel Tesla to adopt a more conservative approach to technology deployment, potentially diluting its market narrative as an aggressive innovator. For a company heavily reliant on a future growth narrative to justify its high valuation, this represents a critical risk. - Furthermore, the Trump administration typically emphasizes "America First" and "antitrust" scrutiny of large tech companies. NHTSA's strict stance could also reflect a broader regulatory trend towards a more cautious approach to emerging technologies, ostensibly under the guise of consumer safety, potentially setting higher entry barriers or regulatory standards for other autonomous driving competitors. How does Tesla's dual strategy of aggressive FSD expansion and simultaneous launch of lower-cost EVs interact, and what does it reveal about management's priorities amidst market challenges? Tesla's strategic balance between advancing FSD/AI and introducing lower-cost EVs reflects its reliance on different growth engines and dynamic adjustments of priorities in the current market environment. - The launch of lower-cost EVs is largely a defensive maneuver to protect market share, aimed at offsetting the impact of federal tax credit expiration and intensifying competition (especially from Asian manufacturers) on sales volumes, ensuring factory utilization, and maintaining overall delivery growth. - While analysts like Daniel Ives noted limited differentiation in the cheaper models, the core idea is to trade some per-unit margin for a larger market base, providing broader user access for future FSD subscription services and energy products. - Conversely, the aggressive expansion of FSD and robo-taxi services represents Tesla's firm bet on high-margin, high-tech future businesses, aiming to elevate the company's identity as a technology firm rather than merely an automaker, thereby supporting higher valuation multiples. This indicates management is balancing short-term volume pressures with long-term profitability and technological leadership visions. Why do analysts generally maintain bullish outlooks despite lukewarm reactions to cheaper EVs and FSD regulatory pressures? Analysts' sustained optimism likely reflects a belief in Tesla's long-term technological advantage and ecosystem value, rather than being solely based on short-term performance or specific product launches. - The market's perception of Tesla extends far beyond its traditional automotive business, viewing it as a leader in AI, energy storage, and autonomous driving. FSD's potential commercialization is seen as a massive future revenue stream, and its technological lead is considered hard to replicate, even with regulatory challenges. - Analysts might view the "tactical pricing adjustment" for cheaper EVs as a response to macroeconomic pressures and market competition, rather than a failure of product innovation. They may anticipate that once the market stabilizes or FSD technology matures, the company will be able to restore profit margins. - Furthermore, Tesla's strong brand effect and infrastructure advantages, such as its global charging network, provide it with a significant moat in the EV sector. Analysts likely believe these structural advantages are sufficient for Tesla to navigate current short-term challenges and benefit from long-term electrification and intelligence trends.