"Tesla's reversal today is something that inevitably happens to red-hot stocks that are too heavily shorted," the "Mad Money" host said. "But unlike so many other heavily shorted names, Tesla's too legit to quit."
Tesla shares rose nearly 20% on Monday and followed that with a 13.7% gain on Tuesday, at one point hitting an all-time intraday high of $968.
But Wednesday brought about a 17.18% pullback for shares of Tesla, closing the session at $734.70. The declines represented the second-worst day for Tesla; it fell 19.3% on one day in 2012.
"This is simply what happens after the sellers let some air out of the balloon, although the fact that Tesla's still up 75% for the year tells you there's plenty of helium left," Cramer said.
Cramer also rejected comparisons of Tesla's past week to bitcoin's massive run in late 2017, when it reached an all-time high of nearly $20,000, and the Tilray short squeeze of 2018, when the cannabis company went from $109 to nearly $3,030 intraday in only a few sessions.
The implication of drawing those parallels is that Tesla's declines have only just begun, Cramer said.
"I think the stock can go lower ... but I think that those comparisons are ludicrous," he said. "Bitcoin was overwhelmed by multiple alternative currencies. Tilray was one among many marijuana companies that came public around the same time, and it was shorted way too soon by many hedge-fund managers, and there was no supply."
Tesla, by contrast, is a legitimate business, Cramer said. That hasn't changed, even as deliveries from its Shanghai plant are expected to see delays due to the coronavirus outbreak.
"This is a unique technology company on wheels, with incredible growth," he explained. "Their product uses less energy and produces far fewer carbon emissions in a world where consumers actually care about that stuff."
Cramer said Wednesday's sell-off was made possible by the distinct set of factors that powered its two-day blitz.
Among them: respected investor Ron Baron saying he thought Tesla's revenue could be $1 trillion in 10 years.
Baron, who owns more than 1 million of the company's shares, has "been right for ages" about Tesla, Cramer said. Therefore, news of his appearance on CNBC's "Squawk Box" alone may have ignited some speculative investors to buy the stock before he went on air, Cramer said.
Tesla's premarket levitation on Tuesday also indicated there was heavy interest in the stock from natural buyers, Cramer explained.
A natural buyer, he said, is someone who is not trying to cover a short sale but instead "establish an actual position."
But by Tuesday afternoon, these factors started to shake out and people who bought the stock Monday wanted to take profits, Cramer said.
"When they started blasting their bids, they knocked the stock off its $900 pedestal," Cramer said. "They were selling real stock — not simply shorting it — so there was genuine heaviness that really spooked the market."
But the market won't be spooked forever, Cramer said.
"I don't know when it will come back to $968 again. Maybe it will take a while ... but when it gets back there, I bet it keeps climbing," Cramer said.