Has Tesla's Tech Reign Come To An End? | ETF Trends

Shares of Tesla are being ravaged on Tuesday, targeting the electric carmaker for its second nosedive this year, as investors have been on a tumultuous ride recently that started with a rally to a record close and was followed by a stock offering, a surge higher, and then an S&P 500 index snubbing, which sent the stock tumbling.

Tesla reached nearly $500 per share to finish last month, only to tumble over $150 as the stock’s selloff began last Tuesday after the electric vehicle maker disclosed a $5 billion stock offering and a significant shareholder reduction in its stake. On Friday, the stock had tumbled as much as 8.6% intraday, before reversing abruptly to finish 2.8% higher and break a 3-day losing streak, after the company disclosed stock trades by a handful of insiders such as Elon Musk’s brother.

Then after the close Friday, Tesla was brutalized following the shocking news that the S&P Dow Jones Indices decided not to add the stock to its benchmark S&P 500 index, something that many investors had been eagerly awaiting, and resulted in considerable anguish.

“Tesla not getting into the S&P 500 club is a head-scratcher and the stock will likely be down for the indexing implications,” Wedbush analyst Dan Ives said in an email to MarketWatch.

“With an estimated ~$4.5 [trillion]of assets indexed to the S&P 500, we think shares were reflecting expectations for substantial passive inflows,” Baird analyst Ben Kallo wrote in a research note. “Unclear why [Tesla] was not included in the recent rebalancing cycle, though we do think the stock will eventually be added to the S&P 500, having fulfilled all inclusion criteria.”

The carnage in Tesla is continuing on Tuesday, with the electric automaker sinking 18.0% in trading Tuesday. It has now lost 29.5% since closing at a record of $498.32 a week ago when a 5-for-1 stock split took effect.

Despite the short-term damage to the stock, there are some analysts who are still optimistic about Tesla’s future prospect?

By the end of August, shares of the electric automaker were up almost 500%, year to date, stepping on short-sellers and defying all the skeptics as the Nasdaq and tech brethren surged to all-time highs. But although Tesla’s run has come to an end, for now, some pundits believe such precipitous drops are normal.

“Even if these companies live up to their now lofty expectations and their stocks end up being grand slam investments, it’s not going to be a straight line up and to the right,” Ritholtz Wealth Management’s Ben Carlson explained. “These companies could become some of the most successful stocks of the next few decades and they will still crash spectacularly at some point.”

He explained that like Tesla, other major companies such as Apple, Amazon, and even Walmart have experienced similar setbacks before continuing to make new highs.

Apple has rallied almost 120,000% (19.5% annualized) since the early 1980s, but has fallen over 75% three different times and has been cut in half several other times.

“This is what happens to successful companies and successful stocks,” Carlson wrote. “If you want to earn big returns in the stock market, expect to live with big losses to get there.”

For ETF investors who have further faith in Tesla, here are few ETFs to watch:

  1. ARK Industrial Innovation ETF (NYSEArca: ARKQ): an actively-managed fund that will invest under normal circumstances primarily in domestic and foreign equity securities of autonomous technology and robotics companies that are relevant to the fund’s investment theme of disruptive innovation.
  2. VanEck Vectors Low Carbon Energy ETF (NYSEArca: SMOG): seeks to replicate the price and yield performance of the Ardour Global Index. “Low carbon energy companies” refers to companies primarily engaged in alternative energy, including renewable energy, alternative fuels and related enabling technologies (such as advanced batteries).
  3. First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGM: QCLN): seeks investment results that correspond generally to the equity index called the NASDAQ® Clean Edge® Green Energy Index. The index is designed to track the performance of small, mid, and large capitalization clean energy companies that are publicly traded in the United States.

Another fund to consider for a broad play on electric vehicles is the  Global X Autonomous & Electric Vehicles ETF (NYSEArca: DRIV). DRIV seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Autonomous & Electric Vehicles Index.

While the majority of these ETFs are struggling currently, they may be worth exploring longer term as Tesla recovers.

For more market trends, visit  ETF Trends.