Tesla makes much awaited S&P 500 debut; Shares fall 4.5%

By Rahul Vaimal, Associate Editor
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The shares of US-based electric car maker Tesla shares fell 4.5 percent in premarket trading as it made its trading debut on the S&P 500 Index.

In anticipation of the landmark inclusion, its shares have jumped 731 percent this year, making it the largest company ever to be added to the benchmark. The electric vehicle pioneer has joined the S&P 100 by replacing oil and gas corporation Occidental Petroleum Corp, which dropped 7.5 percent pre-market.

“Welcome to the S&P 500 Club,” analysts said in a report. The index addition marks a “defining chapter of success” for the company, they added.

Elon Musk-owned Tesla’s stock surge has put its market value at about $660 billion, making it the sixth most valuable publicly listed US company with many investors viewing it as wildly overvalued.

Futures contracts on the S&P 500 were trading down 0.5 percent, following European stocks lower after several major countries moved to suspend travel from the UK amid concerns about a new strain of COVID-19.

Traders who spent most of the year pushing up shares of Tesla in anticipation of surging demand from index funds saw its climax on 18th December, as frantic purchases by passive managers drove the shares up almost 5 percent as exchanges closed. At the end of the day, Tesla shares closed at an all-time high. More than $150 billion worth of Tesla shares traded on that day, ahead of the index inclusion.

“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 out performance post inclusion,” experts had predicted earlier this month.

Market strategists were confused on how the S&P Index would be impacted by the inclusion of the famously volatile stock. The addition would have a small effect on implied volatility, according to analysts, and if Tesla was introduced a month earlier, volatility would likely have decreased for the S&P 500.

Tesla is by far the most traded stock by value on Wall Street, with $18 billion worth of its shares exchanged on average in each session over the past 12 months, easily beating Apple, in second place with average daily trades of $14 billion. About a fifth of Tesla’s shares are closely held by Mr. Musk, the company’s chief executive and other insiders.