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Tesla Shares Fall After S&P 500 Snub

By Lou Whiteman - Sep 4, 2020 at 7:15PM

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Investors had considered inclusion in the index a foregone conclusion.

The recent surge higher in Tesla (TSLA 4.67%) shares was attributed, in part, to anticipation that the electric-vehicle maker would soon be added to the S&P 500 Index. But the new list is out, and Tesla isn't on it. This caused Tesla shares to fall 7% in Friday's after-hours trading.

After markets closed on Friday, index manager S&P Dow Jones Indices announced Etsy (ETSY 4.56%), Teradyne (TER 4.44%), and Catalent (CTLT 0.03%) would be added, effective Sept. 21. Inclusion in the index is a mark of prestige and can lead to shares trading higher, as funds that track the S&P 500 are required to add the new stocks to their portfolios.

A Tesla Model Y driving away from a city.

Image source: Tesla.

Tesla shares are up nearly 400% year to date, and some of the recent push higher can be explained by enthusiasm about its potential entry into the index. In July, the company announced its fourth-consecutive profitable quarter, fulfilling the final requirement for inclusion. This led widely followed analyst Dan Ives of Wedbush to declare that Tesla's addition to the index was "now likely a done deal."

In recent weeks, the company has made other moves that have been seen as making itself more desirable to the index, including its recently completed 5-for-1 stock split.

The snub tops off a disappointing week for Tesla and its shareholders. The automaker's shares fell sharply on Wednesday and were under further pressure on Thursday after Tesla announced plans to raise $5 billion in a secondary stock offering, which was coupled with news that investment management firm and large Tesla shareholder Baillie Gifford had reduced its stake in the company from 6.3% to 5%.

Lou Whiteman owns shares of Etsy. The Motley Fool owns shares of and recommends Etsy and Tesla. The Motley Fool recommends Teradyne. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
$900.09 (4.67%) $40.20
Teradyne, Inc. Stock Quote
Teradyne, Inc.
$104.34 (4.44%) $4.44
Etsy, Inc. Stock Quote
Etsy, Inc.
$119.91 (4.56%) $5.23
Catalent, Inc. Stock Quote
Catalent, Inc.
$109.97 (0.03%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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