In this market commentary, Eddie explains why Tesla’s shares fell up to 20% on a single day, erasing about $80 billion in market value. He reviews Tesla’s extraordinary price gains over the past year (675% YTD, 320% YTD, 85% over three months) and notes that the market now values Tesla more as a technology and software/autonomous‑vehicle company than a traditional automaker, which justifies its high multiples. The primary catalysts for the recent drop are: (1) the S&P 500’s decision to exclude Tesla, denying the stock the automatic buying pressure from passive funds that would accompany index inclusion; (2) a $5 billion equity offering that dilutes existing shares and raises concerns about earnings per share; (3) broader tech market weakness and heightened option‑dealer activity, with dealers short gamma and delta potentially accelerating the decline. Eddie also points to potential technical support around $336 and $300 as key price levels to watch. He concludes that the combination of these factors explains the sharp pull‑back and invites viewers to like, subscribe, and comment for more ad‑hoc market reviews.
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Hey guys, Eddie here with another video. Today we're going to be discussing Tesla, and their shares are down as much as 20% today on Tuesday, erasing up to $80 billion in market capitalization from the world's most valuable automaker. So They're down over 26% over the last week, but let's not forget how much they've increased over the last year alone. So over the last year, they're up a very cool 675%. Year to date, up around 320%. The last 3 months, up 85%. So they've had a real wild ride. They've had increasing attention on them from the retail traders, as we know, but more and more institutions are really warming up to the idea of Tesla. And actually, what's really increased the valuation of Tesla is really not looking at it as an automaker in the traditional sense. So looking at it against comparables like GM, Ford, actually that valuation would generally be a lot lower if you're looking at traditional metrics like deliveries. But really what Tesla is, or what is being viewed as and perceived as, is really a technology name. and really is almost a software company with autonomous vehicles, you know, all the software they've got in their Model S, 3s, Xs, and Ys, and actually the autonomous taxis, the electric vehicle market as a whole, and how much share they can take from that. And actually that leads to a much higher multiple, a much higher valuation. So sell-side analysts are scrambling to increase their targets, or at least they have been. And actually, if it's being viewed as, you know, really the pioneer in the electric vehicle space, not to mention things like batteries, this is why it's commanding such a big valuation at pretty much 1,000 times earnings. So they've had a really wild ride this year, up a huge amount, but actually today they're down up to 20%. And why is this the case? One of the major reasons they've been snubbed by my old company, the S&P, so Standard Poor's. So the S&P 500 has actually passed up on including Tesla, uh, and its most influential, uh, index, the S&P 500. So the S&P 500 is the world's— sorry, the world— America's largest 500 companies, um, and probably in the world as well, but, um, only in, only in America. Tesla's market cap is far higher, um, than most others actually included in the index, but it's actually been snubbed in favor of names like Etsy. Okay, so Etsy is actually 25 times smaller than Tesla on a, on a market cap basis. Why is this snub by the S&P 500 inclusion, you know, hurting their stock price so much? Basically, lots of pension funds and passive funds own the S&P 500, so popular ETFs like SPY as an example. and their job is really to mirror, um, the S&P 500 index. Okay, so when a new company is added to that index, then they need to actually buy shares in the company, uh, to mirror the composition. Okay, so this would put obviously upward price pressure, uh, on Tesla shares, obviously being a positive for them. So the fact that markets over the recent weeks have been pricing this inclusion, uh, in September And now this is not materializing and it may be December or if at all this year. This is obviously going to be a real negative for the stock, as it would have seen a lot more institutional flow if it was included in the S&P 500 index. Another factor that really could be weighing on Tesla shares is the massive $5 billion stock offering they issued with the help of some major leading investment banks last week. According to a new regulatory filing. Sorry. So this share offering usually is dilutive for a company, so affecting popular metrics like earnings per share. The denominator of this being the shares outstanding increases so that earnings per share looks less favorable. So this kind of dilutive action generally would be seen as a negative unless investors perceive them to be doing a really sensible thing once their share price has risen so much. Actually, doing an equity offering is a really, really good idea to capitalize on that share price— uh, prove appreciation, sorry, and actually raise some capital for future investment to the business. But this paired with the snub by the S&P 500 index, plus we saw real negative tech pressure on Thursday and Friday And again, today we're seeing Apple down quite, quite a lot. If you haven't checked out the video I did yesterday regarding the unusual option buying and selling activity of SoftBank, go and check it out. It'll be on the Amplify YouTube channel. But this could be further exacerbated by dealers being short gamma and delta and actually exacerbating the price movement downwards, actually selling more as they're long. So lots of things, uh, weighing on Tesla today, um, but we'll definitely see if they're, you know, if there's any support, mainly at the $336 level or $300 if it does get down there. So that is why Tesla shares are most likely falling today. So if you enjoyed the video, give it a like, give the channel a subscribe, and if you like these kind of ad hoc market reviews, definitely let me know in the comments and I'll be happy to record more. Take care.
