A Wild Week For Tesla

A Wild Week For Tesla

by Gill D on September 10, 2020

EV pioneer, Tesla, got off to a rocky start in September. The month started with a huge stock sale, then saw its fortunes decline (with a slight recovery), then it got a shake-up from competitors and a notable snub from the S&P 500.

Let's look at why Tesla and CEO Elon Musk had an eventual month thus far:

STOCK SLUMP

Tesla (TSLA) was one of the best-performing stocks in the United States had to endure its worst trading day since going public ten years ago. Tesla shares lost 21% of its value after Standard & Poor decided not to add it to its index of 500 major US stocks. If it was added to the index, it would have required portfolio managers who mirror the index to buy additional shares. Part of the rise in Tesla shares in recent months was that there was great anticipation that it would get added to the prestigious index.

However, a dark cloud descended, and Tesla's market value dropped by an estimated $80 billion Tuesday, which is more than the combined market cap of Ford (F) and General Motors (GM). Tuesday's 21% fall edged out the company's 19% slide in January 2012, less than two years after its initial public offering. The company's third- and fourth-largest one-day drops came when it lost nearly 19% on 16 March and 17% on February 5 this year. And, the stock bounced back nicely from each of those sell-offs. And that appears to have happened on Wednesday when the stock closed 11% higher and is up nearly 340% for the year.

STOCK SALE

On 1 September, Tesla announced its plans to sell up to $5 billion in new shares, which came a day after it split its stock that cut the price of each share by a fifth. This week, on September 8, it announced it had completed the sale. The exact number of shares sold, as well as the average price of each sale, has not been disclosed.

Tesla didn't give out too many details about what it plans to do with the money from the stock sale and simply stated in a regulatory filing that it intends to use the proceeds "to further strengthen our balance sheet, as well as for general corporate purposes."

S&P 500 SNUB

On 4 September, S&P Dow Jones Indices announced it was adding three new companies and none of them were Tesla, the most valuable car manufacturer in the world today. The news caused ripples through both the financial and EV industry. The S&P 500 index is one of the most important stock market indices, which is considered a key benchmark for tracking the success of America's largest publicly traded companies.

Despite losing about $100 billion in market cap since then, Tesla is still worth more than Toyota, Disney, and Coca-Cola. "In a nutshell, Tesla not getting into the S&P 500 will be a head-scratcher to the bulls that viewed this as virtually a lock given all the parameters met," Wedbush analysts wrote.

THE COMPETITION

Until recently, Tesla was dominating the media and EV industry with its updates and innovations. Then there was a new launch by Lucid Motors where they unveiled their new EV sedan and within 24 hours, news spread of General Motors partnering with Nikola to design and produce the Nikola Badger, a fully electric and hydrogen fuel cell electric pickup truck.

The partnership gives General Motors an 11% stake in the startup, receiving $2 billion in equity. GM will also have the right to nominate one director to Nikola's board. Nikola shares closed 40% higher following the news.

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