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Tesla Shares Plunge After S&P 500 Snub

Tesla shares plummet after being shunned for S&P 500 index inclusion, despite expectations that four quarters of positive earnings would make it a shoo-in.

Tesla  (TSLA) - Get Tesla Inc. Report plunged on Tuesday, posting additional losses after last week's rout after the company wasn't included in the list being added to the S&P 500 index, despite expectations that four consecutive quarters of positive earnings would make it a shoo-in.

Shares of Tesla were down more than 16% in trading on Tuesday following S&P Dow Jones Indices' announced changes to its venerable bellwether index after the closing bell on Friday that did not include the electric car and battery maker

Tesla has been a standout performer in the U.S. stock market this year, soaring close to 400% through Friday’s close, the second-best performance in the Nasdaq 100 Index behind Zoom Video Communications  (ZM) - Get Zoom Video Communications Inc. Report.

S&P Dow Jones Indices rebalances its indexes on a quarterly basis. A company needs to meet certain benchmarks to be considered, including four consecutive quarters of profitability - something Tesla accomplished after its most recent earnings report but still didn't satisfy the S&P committee that makes the calls.

Indeed, while the electric carmaker reported its fourth quarterly profit in July and its much-hyped “Battery Day” event has also boosted investor optimism, at least some of the wind behind Tesla's tail lights has been the potential for S&P 500 inclusion itself - a move that would automatically force exchange-traded funds and other index-tracking funds to buy Tesla stock, boosting the shares further.

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While Tesla's most recent quarterly numbers made it eligible to be included in the index, the challenges of adding a company with such a large market-cap, which has mushroomed to $390 billion as of Friday, is likely part of the reason S&P Dow Jones took a pass this time around.

Meantime, Tesla shares entered correction territory last week, following news of the company’s largest shareholder after CEO Elon Musk cutting its stake, as well as the market slowly digesting Tesla’s plan to sell as much as $5 billion additional shares. (Tesla said Monday it completed the stock sale). That followed the company's announced 5-to-1 split of its stock, which took effect last Monday.

The S&P 500 index did add online artisan-focused e-tailer Etsy (ETSY) - Get Report as well as equipment manufacturer Teradyne (TER) - Get Report, and pharmaceutical maker Catalent (CTLT) - Get Report. All three names had been previously included in the S&P MidCap 400. The three replaced H&R Block (HRB) - Get Report, beauty firm Coty (COTY) - Get Report, and retailer Kohl's (KSS) - Get Report, all of which will be moved to the MidCap 400 index. The changes are effective Sept. 21.

Tesla stock was down 16.94% at $347.47 in trading on Tuesday. Tesla shares closed at $418.32 on Friday.