Tesla slides on first day of trading on S&P 500 index

Source: By Esha Dey, Bloomberg • Posted: Tuesday, December 22, 2020

The electric-vehicle maker, which now represents 1.6% of the index and is among its heaviest-weighted stocks, fell as much as 6.3% as it retraced gains from Friday when tens of millions of shares were purchased by index-fund managers. The S&P 500 fell as much as 2% amid fears of a new coronavirus strain in the U.K.

“Hedge funds will treat this as a negative catalyst for Tesla given buying pressure eases off very quickly,” Roth Capital Partners analyst Craig Irwin said in an interview.

Institutional buying of Tesla surged late Friday as index-tracking managers rushed to add the shares to their funds. Almost $60 billion worth of stock changed hands at $695 a share, most of it in one giant trade in the session’s waning seconds. The price was about 5% higher than Tesla’s level just prior to the close. More than $150 billion worth of Tesla shares traded on Friday, ahead of the index inclusion.

Other electric-vehicle companies, whose shares have gained significantly over the past month after Tesla’s S&P 500 inclusion was announced, were also weak yesterday. Some of the biggest declines came from Nikola Corp. and Workhorse Group Inc.

Tesla soared 731% this year through Friday in anticipation of the historic inclusion, making it the biggest company ever to be added to the benchmark. The EV pioneer also joined the S&P 100, replacing oil and gas firm Occidental Petroleum Corp.

“There is strong precedence for positive returns for stocks prior to S&P 500 inclusion and post announcement, but very limited precedent for near term outperformance post inclusion,” Sanford C. Bernstein analyst Toni Sacconaghi wrote in a note earlier this month.

Bullish analysts are expecting the rally to resume soon, although possibly at a slower pace.

JMP Securities analyst Joseph Osha raised his price target on Tesla to a Street-high of $788 from $516 yesterday, saying the company’s market opportunity and its potential shipments should be larger than previously estimated. Osha raised his 2025 delivery estimate to 3.05 million units from 2.5 million. The company has said it expects to deliver about half a million cars this year.