Wall Street was a sea of red overnight with heavy declines being seen across the board. One stock that stood out with a particularly significant decline was market darling Tesla Motors.
The Tesla share price dropped a massive 21% to finish the session at US$330.21. This was its largest single-day loss in its history.
Though, it is worth noting that the electric vehicle manufacturer's shares are still up an incredible 284% since the start of the year.
Why did the Tesla share price crash lower?
U.S. investors were taking profit in the tech sector again on Tuesday, leading to the Nasdaq index falling a sizeable 4.1%. Given how high the Tesla share price has climbed in 2020, it isn't at all surprising to see its shares fall more than most.
But it wasn't just that weighing on the Tesla share price.
Investors had been expecting the company to be included in the illustrious S&P 500 index at the next rebalance. However, to the surprise of many, Tesla was snubbed by S&P in favour of online retailer Etsy, automatic test equipment company Teradyne, and medical technology firm Catalent.
Ben Kallo from Baird told Bloomberg that the decision to not add Tesla to the index was a "relatively surprising development."
With an estimated US$4.5 trillion of assets indexed to the S&P 500, he felt that its "shares were reflecting expectations for substantial passive inflows."
"We think the stock could be under pressure following the delay of S&P 500 inclusion, particularly from investors who bought ahead of the announcement expecting an opportunity to sell to passive funds," he added.
Michael Dean, an analyst with Bloomberg Intelligence, suggested that Tesla's failure to make it into the S&P 500 may be due to "question marks about the sustainability of regulatory emission credit sales which are currently underpinning earnings."
Finally, also potentially adding to the selling pressure was news that General Motors is investing US$2 billion into rival electric vehicle company Nikola Corp. The car giant intends to partner with Nikola Corp to engineer and manufacture the latter's Badger pickup.
