Tesla's stock has returned 57% since its 2020 S&P 500 entry, trailing the index's 105% gain as investors continue to pay a premium for future growth that has yet to materialize.
Tesla shares have significantly underperformed the S&P 500 since the automaker joined the index in December 2020. Despite massive revenue growth and increased vehicle deliveries, the company's initial high valuation and subsequent P/E compression have left investors with lower returns compared to a standard index fund.
While Tesla has achieved significant operational growth, the stock was priced at an extremely high valuation in 2020. Much of the company's subsequent growth was used to justify that initial price, leading to P/E ratio compression.