By Stefano Sciandra
Your commercial awareness dose.
Tesla (TSLA), a $538 billion-dollar company, will make its debut on the S&P 500, a stock market index that measures how the stocks of 500 companies listed in the US perform, on 21st December. The inclusion of Tesla on the index is occurring due to its recent high profits. This has been shown through reports which prove in the past five consecutive fiscal quarters the has been a positive level of net earnings. Profitably is one of the few requirements needed to be able to be apart of the index. Furthermore, companies must be listed in the US, trade on the New York Stock Exchange etc.
Elon Musk, CEO of Tesla, has increased his net worth by $100 billion in 2020, but the company itself has outperformed every expectation during the pandemic. Investors are overwhelmingly responding to the news of Tesla becoming one of the 500 companies. Monitored by the S&P index its shares are up 600% year-to-date and 50% up in comparison to last month. With a market capitalisation of $555 billion, Tesla has become the sixth-largest publicly traded company in the US. With such market cap, Musk’s company will break Berkshire Hathaway’s record of $127 billion at the time of its debut on the index.
Analysts at S&P estimate that Tesla’s inclusion on the index will generate around $51 billion worth of new demand for shares, however, since the announcement of its debut, the company has increased its market value by $177 billion. As stated on Forbes, numbers do not add up, this is because of ongoing speculation. According to some equity strategists, Tesla’s valuation has gone “out of control”, to which it will see some declines in the future, with possible risks for shareholders.
The stock may pull back by 10%-20%, as happened to Facebook (FB) when it entered the S&P index. Other analysts seem to be more optimistic, predicting Tesla’s stock to reach a maximum value of $800, a steep increase from the current $584.76 (on December 1st). Bulls, optimistic investors, are excited about these figures, as will potentially give them huge returns. Bears- investors, are sure that competition is coming and think the company is overpriced. The latter is shared by Elon Musk himself, who tweeted “ Tesla stock is too high imo” this spring, before announcing a stock split in mid-summer.
Two significant companies that announced stock splits this summer, Apple (AAPL) and Tesla. The company’s share gets split into multiple shares, so to increase their number and decrease their price, to ultimately reach smaller investors. This creates new demand for the stock and generates liquidity injections. When Tesla had announced its stock split, the company was trading at $1,500 per share, ultimately reaching the record value of $2,200 on August 28th. Before the 5-to-1 split, dropping its share price to $498 on August 31st.
Elon Musk has a growing list of controversies and Tesla’s performance has been subject to mixed reviews from investors and analysts alike. However, we can quite confidently assert that this company is here to stay. Tesla is now worth more than the entire S&P 500 energy sector and the secret to its success, both recently on the markets and with its supporters, is because it is much more than a car manufacturing company. Energy storage, self-driving technology, and solar roofs are just some of the elements in Elon Musk’s master plan, which also include a possible expansion to the HVAC industry (heating, ventilating, and air-conditioning) and to electric planes, to become the largest company in the world.
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