$10,000 in Tesla When It Joined the S&P 500 Would Be About $15,700 Today. An Index Fund Would Have Done Better.

On Friday, Dec. 18, 2020, shares of electric-car maker Tesla (NASDAQ:TSLA) rose almost 6% to close at a record $695. More than 200 million shares changed hands that session (more than $131 billion of stock), making it one of the busiest trading days in the company’s history.

The buying wasn’t optional for everyone. S&P Dow Jones Indices had scheduled Tesla to join the S&P 500 (SNPINDEX:^GSPC) at its full weight before the market opened the following Monday. And the addition was based on that Friday’s closing prices. In other words, every fund tracking the index effectively paid $695.

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Nearly six years later, that $10,000 would have become about $15,700. The same money in an S&P 500 index fund would have grown to about $20,500 before dividends.

Image source: The Motley Fool.

Nearly six years later

Tesla has split its stock once since then (three for one, in August 2022), which turns that $695 closing price into $231.67 per today’s share. A $10,000 purchase works out to about 43 of today’s shares.

As of this writing, the stock trades at about $364, up 57% from the split-adjusted purchase price. But stretched across almost six years, 57% comes to about 8% a year.

The ride was better at times. The stock traded as high as $498.83 within the past year, a level that would have put the stake above $21,000. It hasn’t held it.

The S&P 500, meanwhile, ended that Friday just above 3,700 and now sits close to 7,600 — up about 105%, or about 13% a year. And dividends would widen the index’s lead from there.

Tesla, for all the attention it gets, has trailed the very index it joined.

The reason isn’t that the company failed to grow.

Did Tesla deliver?

The purchase valued Tesla at more than $658 billion, the largest addition in the S&P 500’s history at the time.

In 2020, the company generated about $31.5 billion of revenue and $721 million of net income, its first profitable year. It produced and delivered about half a million vehicles. Against a price tag of more than $658 billion, the market was paying more than 900 times the 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. Notably, 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, tiny back then, deployed 13.5 gigawatt-hours in the quarter, a 41% jump from a year earlier. And net income over the past four quarters was about $3.8 billion, more than five times what the company earned in 2020, though well below the $12.6 billion it earned in 2022.