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Tesla Stock Plummets After Removal From S&P ESG 500 Index — Is Right Now the Time To Sell?

Erik Pendzich/Shutterstock / Erik Pendzich/Shutterstock

Tesla stock prices dropped more than 6%, down to roughly $715, around mid-day of May 18 after it was announced that the electric vehicle manufacturer lost its spot on the S&P 500 ESG index. The S&P 500 follows major companies in a variety of industries, while the S&P 500 ESG ranks companies in the larger index based on environmental, social, and governance factors, per Barron’s.

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Tesla joined the S&P 500 in Dec. 2020 and, at the time, was the largest stock ever to join the index by rank and market capitalization. Upon the news, the stock jumped 400% — from $83.67 to $408.09 — per GOBankingRates. In May 2021, the company joined the S&P 500 ESG Index, an index that includes S&P 500 companies committed to sustainability. Of the 500 companies in the larger index, 315 are also members of the S&P 500 ESG, including Walmart and Disney.

The S&P 500 ESG Index is rebalanced annually. When Tesla made the cut last May, it did so by a slim margin. Barron’s wrote that the company had the worst ESG score among the five auto manufacturers in the S&P 500 but, because of the company’s size and market cap relative to the S&P 500, it could not be left out.

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The S&P 500 ESG Index often drives inclusion for a particular stock in other mutual funds and ETFs.

When rebalancing occurred this year, however, Tesla landed even further down the ranks “relative to its global industry peers” Maggie Dorn — senior director and head of ESG indices, North America, S&P Dow Jones — told Investing.com.

She said the world’s largest EV manufacturer showed “a decline in several criteria level scores related to Tesla’s low carbon strategy and business codes of conduct.”

Investing.com pointed out that other factors — including accusations of racial discrimination and inadequate working conditions in Tesla’s Fremont, California, plant — also contributed to the low score. Further, S&P spokesperson Ray McConville told Barron’s that the issue was “partly a lack of disclosure.” Brands that don’t have information on their sustainability measures publicly available and fail to complete the S&P ESG Corporate Sustainability Assessment survey will naturally score lower, McConville argued.

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Upon hearing the news on the afternoon of May 18, Tesla CEO Elon Musk pointed out that multinational oil and gas corporation ExxonMobil was a top 10-rated S&P 500 ESG company, then tweeted: “@SPGlobalRatings has lost their integrity.” Musk elaborated to say that the S&P 500 ESG “has been weaponized by phony social justice warriors.”

Investment expert Gary Black, co-founder of the Future Fund Active (FFND) ETF, pointed out to Barron’s that Tesla would benefit from an active public relations department. “Teslas are the safest cars in the world, but EV consumers don’t know it,” Black said.

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