How Tesla Stock Price Might Affect Markets

Mr. Musk has sold off large tranches of Tesla’s stock before. Last year, he sold some 15 million shares, worth more than $16 billion, over two months. Those sales did not appear to measurably drive Tesla’s price down, though it’s unknowable whether the price would have gone up had he not been selling.

When Tesla’s stock drops, what happens to the rest of the market?

Tesla is a component in both the S&P 500 and the Nasdaq composite index. In addition to being barometers of how stocks in the United States are performing, both indexes are mirrored by numerous mutual funds that are invested in widely.

The S&P 500, considered the benchmark U.S. index, weights companies according to their market value. Tesla, which is worth about $900 billion, is one of the most influential stocks in the index.

For every dollar that Tesla’s stock dropped on Tuesday, the S&P 500 lost 0.099 points, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices. That means the drop in Tesla’s stock accounted for nearly a tenth of the S&P 500’s fall on Tuesday.

“So it did have a very large impact,” Mr. Silverblatt said, but “not the highest.” Apple, with nearly three times the valuation of Tesla, has far more impact. Its stock’s drop of 3.7 percent on Tuesday contributed more to the overall index’s decline.

So why did Tesla’s stock fall?

Tesla is a famously volatile stock. Tuesday’s 12.2 percent fall was its worst daily decline since Sept. 8, 2020, when it shed about 21 percent of its value. But in the past six months, Tesla shares have twice fallen nearly 12 percent, on Nov. 9 and Jan. 27.

Some — including Mr. Musk, at times — have suggested that Tesla is overvalued. Among those who believe in Tesla’s valuation, which is much higher than rival automakers’ relative to the size of its operations, a lot of the argument depends on Mr. Musk’s stewardship. Even Tesla acknowledges this, stating as a risk in its most recent quarterly report: “We are highly dependent on the services of Elon Musk, techno-king of Tesla and our chief executive officer. Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla.”