Tesla’s rally had made it the most valuable carmaker in the world
Tesla’s rally had made it the most valuable carmaker in the world © AFP via Getty Images

Tesla’s stock on Tuesday fell by the most on record, in a sell-off sparked by news that the electric car pioneer was passed over for inclusion in the S&P 500.

The shares were down 21 per cent, closing at $330.21, in their biggest slide since Tesla made its trading debut in 2010. The retreat pushed the shares to a three-week low amid a broader sell-off on Wall Street that hit big technology companies especially hard. The carmaker was the worst performer of any Nasdaq 100 component on Tuesday.

The extreme volatility in Tesla’s shares has left them susceptible to wild swings. The retreat wiped about $82bn from its shares, though it gained $52bn in a single day at the end of August.

Tesla shares had surged sixfold since the start of the year — a rally that at one point left it worth more than twice as much as Toyota, the world’s next most valuable carmaker. They have since fallen back 34 per cent in the space of five trading sessions.

S&P Dow Jones Indices, which manages the S&P 500, passed over Tesla late on Friday when it announced three new companies to add to the benchmark index as part of its regular quarterly reweighting. Hopes that Tesla would be added, forcing a wave of buying as fund managers that track the index have to add it to their portfolios to mirror the benchmark, had contributed to the frenzied buying in August.

Line chart showing Tesla’s shares ($) falling the most on record

Some analysts still maintained that Tesla could be added to the index before the end of September, when the reweighting takes effect. Garrett Nelson, analyst at CFRA, said the potential move “is likely to prompt a new wave of buying”.

While technically possible, however, such a move is seen as highly unlikely. New companies can be added at any time, and Tesla in the last quarter met the requirements for 12 months of profitability to be admitted, though only thanks to the sale of regulatory credits to other carmakers, rather than from selling cars.

But the group behind the index has no requirement to add companies, even when, like Tesla, their high market value makes them a factor in overall stock market moves. Instead, it sought to match the index to underlying sectors of the economy, rather than track market sentiment, said Howard Silverblatt, a senior analyst at S&P Dow Jones Indices.

One result was that the index committee was criticised for leaving it severely underweighted in tech stocks during the tech rally of the late 1990s, though the disparity eroded after the dotcom bust.

Mr Nelson said the sell-off in Tesla shares had partly been prompted by the company’s announcement at the start of last week that it would sell $5bn worth of stock.

The company confirmed on Tuesday that it had completed the stock sale on Friday, capping a capital raise that was timed perfectly for the top of the market. The average share price of $446 while the sale was open was almost nine times the price it sold shares in a $2bn capital raise 16 months ago, when bankruptcy rumours were swirling about the company.

The latest leg down in Tesla’s share price came the same day that General Motors took an 11 per cent stake in Nikola, an Arizona-based battery and hydrogen fuel cell vehicle developer. The agreement, which will entail GM supply manufacturing and other services to Nikola, sent shares of the upstart company up more than 40 per cent.

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