One thing that has been driving Tesla stock recently is the expectation that it would be added to the S&P 500. However, that didn’t happen, and investors started unloading the shares as a result. The S&P 500 Index Committee added Catalent, Etsy and Teradyne to the index on Friday, but it excluded Tesla stock.
Q2 2020 hedge fund letters, conferences and more
Tesla stock excluded from the S&P 500
Many investors had been banking on Tesla stock being added to the S&P 500 after the company posted its fourth straight quarter of profits. However, when it was revealed that the EV maker wasn't added to the index, its shares plunged by more than 7% after Friday's closing bell and were down as much as 15% before opening bell this morning.
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Tesla stock has skyrocketed this year, climbing about 400% and making the company more valuable than some of the biggest automakers in the world, including Volkswagen and Toyota. It's unclear why the S&P 500 committee snubbed Tesla stock, but one popular hedge fund manager had an idea.
David Einhorn of Greenlight Capital alleged in a recent letter that Tesla was gaming the S&P 500 Index Committee. He pointed out that the most recent quarterly earnings report showed a sharp increase in sales of regulatory credits, which could account for its profits. He also said the automaker has been abusing the accounting rules.
"Through what appears to be sheer abuse of the accounting rules, TSLA has now contrived reported profits to make it technically eligible [to enter the S&P 500]," he wrote in his second-quarter letter to investors. "In addition to its routinely questionable accounting maneuvers, Tesla appeared to defer employee compensation, depreciation expense on its new plant in China, and research and development spending."
Tesla completes stock sale
In addition to being excluded from the S&P 500, there is one other reason Tesla stock is down today. The company announced a $5 billion capital raise last week, saying it would sell all the new shares from time to time at market values.
However, the company revealed in a regulatory filing today that it has already sold all of those shares. Tesla said it completed the sale of all $5 billion worth of shares under the "at-the-market" offering program that was disclosed on Sept. 1.
One other factor that may be influencing Tesla stock today is the decline in tech stocks. Apple, Facebook and Amazon all declined by about 2%. Tesla stock has declined about 27% in a little over week since closing at a record high.
After today's steep decline, the shares are on track for a second bear market this year. If the shares decline 20% from the record high, they would officially be in another bear market.
