Tesla investors push shares into reverse after debut on S&P 500

INVESTORS began ditching electric car giant Tesla yesterday as it joined the US benchmark S&P 500 index.

The inclusion, with a 1.7pc weighting, makes it the fifth largest company in the flagship index and means its shares will now have to be bought by funds that track the S&P.

The stock has risen by nearly 700pc this year and 33pc since S&P announced its inclusion. But investors started taking profits yesterday, and the shares ended the day down 6.5pc at $649.86 (£483).

Susannah Streeter, of Hargreaves Lansdown, said Tesla’s price surge leading up to its inclusion made sense as funds were forced to buy billions of dollars of Tesla shares, but the share price by the end of last week had risen well ahead of the company’s real value.

“The company fundamentals haven’t changed so car sales need to really accelerate to justify its huge valuation. There was a big improvement in its last financial results, but the share price of $695 means it really needs to deliver something special in 2021,” she said.

“On paper Tesla does not deserve its valuation, but it has lots of ‘intangible’ assets like its software, driving data, engineers and brand,” she said.

Nevertheless, she advised investors to continue taking profits and hold Tesla as part of a diversified portfolio,

such as in an S&P 500 tracker fund, rather than as a large single holding.

“There is bound to be a price correction, but it is impossible to know when,” she said.

David Whiston, of financial research group Morningstar, put a valuation of $306 on the shares. “Tesla has a chance to be the dominant evehicle firm in the long term and is a leading autonomous vehicle player, but we do not see it having mass-market volume this decade.

“Investing in Tesla comes with tremendous uncertainties due to the future of electric vehicles and energy storage. In a recession, investors may not want to hold the stock of a firm whose story will not play out until next decade,” he said.

Mr Whiston added that if chief executive and founder Elon Musk left the company, shares could plummet as Tesla’s fate is closely linked to Musk’s actions. “We see immense key-man risk for the stock,” he said.

William de Gale, a technology specialist at investment manager Bluebox, said Tesla’s S&P inclusion played into the hype around the company but would no longer spur its share price.

“Its inclusion was a one- off event and now it ’s done. It is time to take some profits and use the cash for something concrete, such as paying off part of a mortgage.”