• Tesla's stock slips as it is kicked out of the S&P 500 ESG index.
  • Elon Musk reacts aggressively, calling it a scam.
  • TSLA breaks below $700 in premarket trading on Thursday.

Update: Tesla stock price (NASDAQ: TSLA) hit its lowest in five days at $694.36 before recapturing $700 to settle Thursday almost unchanged on the day at $709.42. Growth fears dominated and weighed on the overall market mood, leading to a negative close on major Wall Street indices. Tesla bore the brunt of the dour mood while investors reeled from the pain of the stock being removed from the S&P 500 ESG Index because of issues including claims of racial discrimination and crashes linked to its autopilot vehicles. In response, Tesla CEO Elon Musk tweeted out, saying that "ESG is a scam".

Tesla (TSLA) found itself at the center of attention on Wednesday for all the wrong reasons. The stock suffered several analyst downgrades, and Tesla also found itself booted out of the S&P 500 ESG Index. ESG stands for environmental, social and governance – an attribute given to certain stocks that demonstrate certain ethical standards besides only the bottom line. Booting out the trailblazer for electric vehicles does seem odd at first glance, but a closer look may cause a rethink.

Tesla Stock News

Elon Musk certainly was not happy with the decision as he took to Twitter (TWTR) – oh the irony! – to complain about the decision. 

This is the same Elon who recently switched sides to the Republicans. He explained that the Democrats are now all about hate and division and switched to the Republicans. Interesting that the Democrats are proposing a big tax on billionaires. Is it timing or just coincidence? You decide. Musk has been leaning toward the Republicans for some time and has said he would like to see former President Trump reinstated to Twitter. Whether or not that happens may not be in Elon Musk's hands as he dithers over whether to push ahead with the Twitter takeover at all. 

Now on to the ESG argument. At first glance, it does seem odd. Tesla after all invented the modern electric vehicle sector, and we know how much pollution comes from legacy fossil fuel vehicles, but the key is in the social and governance aspects. Many seem to think the ESG is just about being green, but it is more about ethics and has a much broader remit than just environmental standards. If you take a look at Tesla, you can see some faults. Now no company is perfect, but there have been plenty of controversies.

S&P issued a blog post to explain its decision. It said it had concerns over "the lack of a low carbon strategy" and "codes of business conduct" and mentioned racism and poor conditions at the Freemont factory. CNBC dug a bit deeper, noting that "in February this year it (Tesla) settled with the Environmental Protection Agency after years of Clean Air Act violations and neglecting to track its emissions." The company has also detailed in the last quarterly SEC filing lawsuits related to alleged race discrimination

"On October 4, 2021, in a case captioned Diaz v. Tesla, a jury in the Northern District of California returned a verdict of $136.9 million against Tesla on claims by a former contingent worker that he was subjected to race discrimination while assigned to work at Tesla’s Fremont Factory from 2015-2016. On November 16, 2021, Tesla filed a post-trial motion for relief that included a request for a new trial or reduction of the jury’s damages. The Court held a hearing on Tesla’s motion on January 19, 2022. On April 13, 2022, the Court granted Tesla’s motion in part, reducing the total damages to $15 million and conditionally denied the motion for a new trial subject to the plaintiff’s acceptance of the reduced award."

In February, shortly after the Diaz verdict, the California Department of Fair Employment and Housing filed a separate civil complaint against the EV maker, according to its latest 10-Q.

Tesla also responded to being taken out of the ESG Index by saying “Current environmental, social and governance (ESG) reporting does not measure the scope of positive impact on the world. Instead, it focuses on measuring the dollar value of risk / return."

Overall, despite being short the stock, I tend to agree. Tesla has done more than any company in history to advance the cause of the electric vehicle and end the dependence on fossil fuel vehicles. Without Tesla, major legacy auto manufacturers would likely have delayed the change to electric for as long as possible. Tesla forced them to adapt years if not decades ahead of schedule. The company is correct that its impact on the world is definitely huge and seismic. ESG probably is not capturing the big picture here but using predefined narrow-focused measures. 

Tesla Stock Forecast

Now enough haggling, what of the stock itself? Well, the market is certainly in bear territory, and Tesla has broken $700 in Thursday's early premarket. The trend remains clearly bearish with lower lows likely. Breaking $700 should see Tesla move quickly to $620. Resistance now sits at $848, and our new bearish pivot has been reduced from $945.

Tesla (TSLA) stock chart, daily

The author is short Tesla and Twitter.

Previous updates

Update: Tesla closed Thursday down a modest 0.05% at $709.42 per share. Wall Street tried to shrug off the negative tone with the S&P 500 and the Nasdaq Composite posting modest intraday gains. Nevertheless, stocks were unable to preserve their gains and the three major indexes closed in the red. The Dow Jones Industrial Average was the worst performer, ending the day down 0.75%. Overall, the market mood remained sour with the focus on inflation and slowing economic growth. 

Update: Tesla stock is doing quite well on Thursday for getting kicked out of Standard & Poor's ESG index. CEO Elon Musk went on a tirade on Twitter on Wednesday, but it sure seems the market is brushing off the slight at the moment. An hour into the session, TSLA is trading up 0.4% at $712. Shares did break as low as $694 early on in the session, but TSLA quickly rebound back above $700. The Nasdaq is up 0.2%. At least 1,536 June 17 put contracts were purchased at a strike price of $500 on Thursday. Someone sure thinks there is a lot more downward volatility in this one. More than 17,000 contracts in total are open at this expiry and strike price. These contracts last traded at $10 a share.

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