A $10,000 stake in Tesla bought the day it joined the S&P 500 in December 2020 is worth about $15,700 today, while the same money in an S&P 500 index fund would have grown to about $20,500 before dividends. Tesla's revenue has more than tripled since then, but the stock still trails the index because its 2020 valuation already priced in years of growth.
Tesla joined the S&P 500 at full weight before the market opened the following Monday, based on its record close of $695 the previous Friday. More than 200 million shares changed hands that session. Every fund tracking the index had to buy Tesla at that price, since the addition was set before the market opened. Nearly six years later, that $10,000 stake is worth about $15,700, versus about $20,500 for the same money parked in an S&P 500 index fund before dividends.
The math behind the gap
Tesla split its stock three-for-one in August 2022, turning that $695 closing price into a split-adjusted $231.67 a share, or about 43 shares for a $10,000 purchase. The stock now trades near $364, up 57% from the split-adjusted purchase price — about 8% a year over almost six years. It traded as high as $498.83 within the past year, a level that would have pushed the stake above $21,000, but it hasn't held that level.
The S&P 500, by contrast, ended that Friday just above 3,700 and now sits close to 7,600, up about 105%, or roughly 13% a year — and dividends would widen that lead further. Tesla, for all the attention it draws, has trailed the very index it joined.
Growth arrived, but the price already reflected it
The reason isn't that Tesla failed to grow. The 2020 addition valued the company at more than $658 billion, the largest addition in the S&P 500's history at the time, against 2020 revenue of about $31.5 billion and net income of $721 million — its first profitable year. That price tag put the market paying more than 900 times that year's earnings.
Much of the growth that price demanded did show up. Tesla's trailing-12-month revenue now tops $100 billion, more than triple 2020's total, and the company delivered more than 480,000 vehicles in this year's second quarter alone, up 25% from a year earlier — nearly as many as it delivered in all of 2020. Its energy storage business deployed 13.5 gigawatt-hours in the quarter, a 41% jump from a year earlier. Net income over the past four quarters ran about $3.8 billion, more than five times the 2020 figure though still below the $12.6 billion Tesla earned in 2022. Even so, the stock lost to the index because years of that growth were already priced into the $695 entry point: Tesla's price-to-earnings ratio compressed from more than 900 times earnings to more than 330 times earnings over the stretch.
Today's price bets on autonomy
At more than 330 times earnings, today's buyer is arguably making the same trade the index funds made in 2020 — paying up front for growth that hasn't arrived yet. This time, the growth is supposed to come from autonomy. Tesla's Robotaxi service now runs in seven major U.S. metros. Its steering-wheel-free Cybercab began carrying passengers in Austin this month, the same day federal regulators opened an audit of the vehicle's certification.
That bet isn't free. Second-quarter revenue rose 26% year over year, but net income fell 5%, and operating margin shrank to 1.4% from 4.1% a year earlier. Capital expenditures came in at $5.8 billion, more than double the year-ago figure, turning free cash flow negative. Autonomy may still deliver, but the 2020 purchase stands as a reminder that even impressive growth can lose to an index fund when the starting price already reflects it.
Source: The Motley Fool
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