Tesla to Join Prestigious S&P 500 Index
Editorial Credit: Giovanni Cancemi/Adobe Stock
Despite the COVID-19 pandemic, Tesla shares have surged since the company announced its surprising quarterly production and delivery numbers.
Once a small scrappy Silicon Valley startup, Tesla is now on the verge of S&P 500 inclusion.
Tesla stocks climbed 13% after trading on Monday, based on news that the corporation would be included in the prestigious S&P 500 index, presumably attracting heightened interest from both investors and professional funds managers.
At this juncture, Tesla has become the world’s most valuable automaker, with a market cap exceeding all other legacy automakers (including Toyota). Their market cap even exceeds old-guard, blue chip companies like oil giant Exxon Mobil.
It’s Official
SP Global has confirmed that Tesla will be added to the index prior to the open of trading on December 21. Money managers who track the S&P 500 scrambled to add Tesla to portfolios, causing the stock to surge in after-hours trading.
The California EV maker’s addition to the benchmark Dow Jones index has been forecast for some time, and the company became eligible after reporting its fourth consecutive profitable quarter. Tesla just delivered 2,250 more cars than the first quarter deliveries of 2020, and its market value is now at $386 billion.
“This is another major feather in the cap for Tesla bulls joining the S&P 500. It speaks to the sustained profit trajectory that Tesla is now finally getting into this elusive club after much noise on the Street.”
A Variety of Determinants
In fact, Tesla stock has increased fivefold in 2020, and up 390% year-to-date, on the strength of a combination of factors:
Introducing the Model Y, the crossover variant of the Model 3 that became the world’s most successful electric car
Gigafactories (huge factories the size of 93 Boeing 747 wide-body airliners) opening, under construction or announced on three continents
Bouncing back from the Covid-19 pandemic to post a record Q3, including a net income of $809 million.
And more developments are in the offing:
The unveiling of Tesla’s long-term battery plan
The roll-out of its “fully functional” Full Self Driving beta to selected drivers
However, neither of these has yet to gain traction in terms of market value; investors are waiting to see how both new technologies may evolve.
But the addition of Tesla to the S&P 500 is clearly buoying investors now. Based on Monday’s value, it will be in the top ten of most valuable company’s in the index.
SP Global said in its release that, “Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback …. to determine if Tesla should be added all at once …. or in two separate tranches.”
What’s Next?
Figuring out exactly what will happen is tricky. Traders might expect Tesla stock to retest its 52-week high. There are other data points to look at to estimate near term trading levels. Back in September, the top analyst price target from a large brokerage was $500. Now, the top analyst target price is $578.
$500 and $578, however, are only suggestions and not tied to EV or auto industry fundamentals. There is no reason any stock has to hit a top analyst target price, but traders will always look for clues about the near future.
With a market capitalization of about $250 billion, Tesla will enter the Index as the world’s most valuable car maker, and among the most valuable companies ever added to the S&P 500. It should be the ninth or tenth most valuable company in the S&P 500, trailing behind Walmart or Visa and larger than 95% of the index's existing components. Ford Motor and General Motors are the other two auto makers in the S&P 500.
Disclaimer: This content is intended to be used and must be used for informational purposes only. I strongly recommend that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.