Mr. Musk has previously sold large tranches of Tesla’s stock. Last year, he sold some 15 million shares in two months, worth more than $16 billion. Those sales did not appear to measurably reduce Tesla’s price, although it is not known whether the price would have increased had it not sold.
What Happens To The Rest Of The Market When Tesla Shares Drop?
Tesla is a component in both the S&P 500 and the Nasdaq composite index. In addition to being barometers of how stocks in the United States are performing, both indices are mirrored by numerous mutual funds that invest widely.
The S&P 500, considered the US benchmark index, weighs companies based on their market value. Tesla, valued at approximately $900 billion, is one of the most influential stocks in the index.
For every dollar that Tesla’s stock fell Tuesday, the S&P 500 lost 0.099 points, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices. That means the drop in Tesla stock accounted for nearly a tenth of the decline in the S&P 500 on Tuesday.
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“So it had a very big impact,” said Mr. Silverblatt, but “not the highest.” Apple has much more impact at almost three times the valuation of Tesla. The stock’s 3.7 percent fall on Tuesday contributed more to the decline in the overall index.
So why did Tesla’s stock drop?
Tesla is a famously volatile stock. Tuesday’s 12.2 percent drop was the worst daily decline since September 8, 2020, when it lost about 21 percent of its value. But in the past six months, Tesla shares have fallen nearly 12 percent twice, on Nov. 9 and Jan. 27.
Some—sometimes including Mr. Musk—have suggested that Tesla is overvalued. Among those who believe in Tesla’s valuation, which is much higher than competing automakers relative to the size of their operations, much of the argument hinges on Mr. Musk’s stewardship. Even Tesla acknowledges this, calling it a risk in its most recent quarterly report: “We rely heavily on the services of Elon Musk, Tesla’s techno king, and our chief executive officer. While Mr. Musk spends a lot of time at Tesla and is very active in our management, he does not devote his full time and attention to Tesla.”
