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Tesla shares tumble below level from before S&P 500 inclusion

The electric carmaker is trapped in a negative feedback loop with the price of bitcoin and the Ark Innovation ETF, one analyst said

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Tesla Inc (NASDAQ:TSLA) shares fell to their lowest in over 10 weeks in early trading as they were dragged into a negative spiral with the price of bitcoin.

The stock dropped to below US$620 in early trades on Tuesday, a fall of around 9%, which also extended its recent decline to a plunge of over 20% since the last week of January.

Tesla’s shares last dabbled in the low $600s in early December, before the company was added to the S&P 500 benchmark, and mean their value is below the US$695 the day before they joined the prestigious index.

Boss Elon Musk earlier this month revealed that the electric car manufacturer had bought US$1.5bn of the popular cryptocurrency.

“Shares in Tesla are under pressure these as bitcoin is experiencing a steep sell-off,” said Peter Garnry, head of equity strategy at Saxo Bank.

“This in turn is causing selling pressure in the Ark Innovation ETF and overall this risk cluster of Tesla-Bitcoin-Ark is reinforcing the intertwined dynamics both on the upside and now certainly on the downside.”

Tuesday’s sell-off has been brutal so far this week, down 8.6% on Monday after Musk’s said the price of bitcoin and ethereum “do seem high” and Janet Yellen’s, US Treasury Secretary, made negative comments about bitcoin and other cryptocurrencies.

While bitcoin recovered most of the losses yesterday, it is down 9% again today.

This is, said the Saxo analyst, “adding to volatility and exposing the massively increased earnings volatility for Tesla due to Musk’s decision to add Bitcoins to Tesla’s balance sheet”.

As for the connection to Ark Invest, Garnry said, “the game has turned”.

Led by Cathie Wood, the investment firm manages the world’s largest actively-managed ETF, the Ark Innovation ETF, after years of consistent inflow into its funds accelerated in 2020, with assets under management almost increasing 20 times to around US$60bn.

Ark Innovation, the company’s most famous fund, was down 5.8% yesterday and is down another 4% today.

“These declines could accelerate outflows which then creates a selling pressure in the underlying shares which then intensifies the risk-off dynamics and then it becomes a negative feedback loop,” said Garnry.

Quick facts: Tesla Inc

Price: 682.22 USD

NASDAQ:TSLA
Market: NASDAQ
Market Cap: $648.28 billion
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