Tesla Stock Dropped. A Legal Setback May Explain the Shaky Performance.

Coming into Tuesday trading, Tesla stock was up about 4% since the company launched a robo-taxi service on June 22, but shares were up about 40% since Tesla’s robo-taxi event held on Oct. 10, 2024. (Dreamstime)

Tesla stock gyrated on Tuesday, with investors seemingly in a late-summer mood.

Shares opened lower but rallied, trading as high as $340.55, before dropping to close at $329.31, down 1.8%. The S&P 500 fell 0.6% and the Dow Jones Industrial Average finished flat.

The intraday volatility might have had something to do with a weak market. Tesla was also dealt a legal setback in California: Judge Rita Lin on Monday evening granted a plaintiff’s motion for “class certification” in a lawsuit about Tesla’s driver assistance technology. The plaintiffs allege Tesla misrepresented the company’s technology.

Class certification means that one plaintiff can represent many similar claims. It can ultimately increase the cost to the defendant if they lose or settle the case.

Tesla didn’t respond to Barron’s request for comment.

Tesla also launched its Model Y L version in China on Tuesday. It’s a six-seat version of the company’s most popular model, with captain’s chairs in the second row, plus a third row of seats.

The Model Y L “is great for families and will drive traffic to Tesla showrooms,” says Future Fund Active ETF cofounder Gary Black. That’s a small positive for the stock. “I’m not sure if it will drive higher incremental deliveries, net of cannibalization of other Model Y [versions].”

The early bump in Tesla’s stock price might have been Model Y L-related. It also came after William Blair analyst Jed Dorsheimer reviewed Tesla’s robo-taxi service and came away impressed.

“Wow, everything’s computer,” he wrote on Tuesday, referring to what President Donald Trump said at a White House event where he bought a Tesla from CEO Elon Musk.

The president was impressed with Tesla’s technology. So was Dorsheimer.

“The comparisons are immediate and stark—when we drove past Waymo and Zoox vehicles outfitted with their complex sensor suite, they stuck out like a sore thumb,” added the analyst.

Tesla, which launched a small robo-taxi service in Austin, Texas, on June 22, uses only optical cameras and its Full Self Driving software to make cars drive themselves. Alphabet’s Waymo and Amazon.com’s Zoox use more expensive sensors.

That can give Tesla a cost advantage in the robo-taxi business, Dorsheimer said, assuming the company’s approach is as effective as others.

Tesla’s “robo-taxi felt like a more luxurious service [than Waymo] for half the cost, and the driving felt more humanlike,” he wrote in the report.

That’s a win for Tesla. Waymo is the far more experienced robo-taxi operator, completing more than 250,000 fully autonomous rides each week. Still, both services are impressive. Barron’s has taken rides in Waymo cabs.

Dorsheimer values Tesla’s robo-taxi business at almost $300 a share, or more than $900 billion. Dorsheimer rates Tesla shares Hold, but doesn’t have a target for the price. His sum-of-the-parts valuation, which looks at Tesla’s various businesses, including robo-taxis, cars, and energy storage, is close to $360 a share.

It’s another positive review of the Tesla robo-taxi and self-driving opportunity, but Wall Street has been writing about robo-taxis for many months.

Tesla shares have been somewhat directionless lately, up about 4% over the past eight-plus weeks since the robo-taxi service began. Coming into Tuesday trading, shares had risen 21 times and fallen 20 times over that span. Still, Tesla stock was up about 40% since Oct. 10, when the company hosted a robo-taxi event in Hollywood, adding more than $300 billion to the company’s market value.

Write to Al Root at allen.root@dowjones.com