What happened on Tesla’s first day on the S&P 500?

22 Dec 2020

Image: © Aleksei Potov/Stock.adobe.com

Tesla’s first day on the S&P 500 Index saw a 6pc drop in shares. It came on the same day as reports of Apple’s latest self-driving car plans.

After a rollercoaster of a year, including a main factory shutdown, Tesla finally had its first day of trading on the S&P 500 Index.

After a surge of share purchases by index-fund managers on Friday (18 December), the electric-vehicle maker retraced these gains, with stock falling by more than 6pc yesterday (21 December).

While the fall may be disappointing, previous high-profile S&P 500 additions such as Facebook and Yahoo suffered similar post-inclusion drops in the past.

In spite of Tesla’s drop, it is now the sixth most valuable company on the S&P 500 Index. The company’s stock was up more than 700pc this year through Friday’s close, having surged 70pc since mid-November when it was confirmed that it would join the index.

Tesla joined the index with a market value of $630bn and the company will make up about 1pc of the index, slightly less than the 1.3pc weight that Warren Buffett’s Berkshire Hathaway had when it was added in 2010.

Tesla’s rollercoaster year

Tesla started the year strong with profitable earnings for 2019, but as Covid-19 was beginning to take hold of the world, it gave the first suggestions of production delays. On the same day the company announced its 2019 Q4 earnings in January, it also reported the temporary shutdown of its Shanghai factory.

As pandemic restrictions came into play across the world, Tesla’s main factory in California was forced to shut down as well, which resulted in CEO Elon Musk taking legal action.

However, in spite of manufacturing slowdowns, the company defied odds in its 2020 Q2 earnings, bringing in $6bn in revenue and a profit of $0.50 per share. Contributing factors, Tesla said, included “a temporary reduction in employee compensation expense” and “a sequential increase in regulatory credit revenue”.

In the months that followed, Tesla’s CEO announced further progressions for the company’s self-driving technology, making the bold claim that Tesla was “very close” to having the “ basic functionality” for Level 5 autonomy by the end of this year.

In October, a beta version of Tesla’s ‘full self-driving’ software was released to a select number of customers. This added significant autonomy to cars, allowing drivers to use many Autopilot advanced driver-assisted features on city streets.

Apple’s self-driving car back on track

There was an accelerated sell-off of Tesla stock at the end of its first day on the S&P Index due to new reports in the self-driving car market.

According to Reuters, Apple is working on its own self-driving car technology with plans to produce a passenger vehicle that could include new battery technology by 2024.

Apple has had an uneven journey towards producing self-driving cars. While plans for its ‘Project Titan’ were revving up in 2015 as it scouted test locations, the company then announced plans to move focus from the hardware of the cars themselves to the software for the internal technology. This focus was further solidified in 2017, according to report from The New York Times.

However, the latest report from Reuters suggests that Apple is looking to put its own car on the road, with its new battery design central to the strategy. While Apple has declined to comment on its plans, reports negatively affected Tesla’s stock.

Meanwhile, stocks soared by more than 20pc for Velodyne and Luminar. The two companies make lidar sensors, which are a core component for self-driving cars.

Jenny Darmody is the editor of Silicon Republic