Tesla hit another milestone, stocks are in boom! – Opinion
Independent analyst Adelmo Silva looks at the material factors that have contributed to robust trading of Tesla stock on the retail market
By Adelmo Silva, Independent Market Analyst
Tesla stock is knocking on the doors of the popular S&P 5000 index as its second-quarter earnings exceed all of Wall Street’s expectations. The US electric vehicle company that also creates clean energy solutions has posted four consecutive quarterly profit reports.
Its latest profit warning is the last milestone that the Palo Alto-based company needs to find its place in the market index that aggregates the performance of the stock of 500 of the largest listed American businesses.
The S&P is one of the most followed equity indices on Wall Street and is the ultimate representation of the American stock market. On the announcement of its second-quarter profit, Tesla’s stock shot up by 4.4 percent. The electric carmaker said that it had earned $104 million as net income between April and June. By posting profits in four straight quarters during the ongoing pandemic, Tesla has proven to its critics it is set to take the vehicle manufacturing industry into an electric future.
Teslas’ stock prices have ballooned by over 500 percent in a year as investors become excited at the potential of the company’s inclusion in the attractive stock index. The demand for its shares has for instance risen at the etoro copy-trading hub, the home of social trading. Traders are navigating in their droves to the platform’s “Copy People” section to copy professional traders and their strategies, that are bringing the highest returns
Musk Vows Growth Over Profit
Martin Eberhard and Marc Tarpenning created Tesla in 2003. They left the outfit in 2008. The business’s CEO Elon Musk joined the business in 2004 and has become the face of the company. Some of Tesla’s most popular electric vehicles are its Model X, S and 3, and the alien-looking Tesla Cybertruck made of a dent and scratch-resistant stainless steel.
The company says that the pickup truck has an over 500 miles driving range and can tow weights of up to 14,000 pounds. Other Tesla products include its Powerwall and Powerpack rechargeable energy and storage products. Solar City, a Tesla subsidiary is its solar roof tiles and solar panels arm.
Elon Musk has vowed that the company will keep prioritizing growth and innovation over profit. “The thing that bugs me most right now is that our cars are not affordable enough, we need to fix that,” Musk said. “I think we just want to be slightly profitable and maximize growth and make the cars as affordable as possible.”
Model 3 for instance goes for $37,990 while the cheapest Tesla Cybertruck will go for $39,900. The business plans to sell over 500,000 vehicles by the end of this year, despite the effects of the coronavirus epidemic on supply chains. Tesla has delivered over 90,000 of its vehicles in its latest quarter.
A Tesla Shares Bull Case Scenario
Some analysts believe Tesla’s inclusion in the S&P 500 is a foregone conclusion. Some however warn that meeting the inclusion criteria does not equate to an automatic addition to the popular index. American businesses on the Wall Street index have a minimum market cap of $88.2 billion.
They also have to show four consecutive profitable quarter earnings as per the country’s accepted accounting principles. For the time being, Tesla is an eligible candidate and could become part of the stock index should a current S&P business lose its eligibility criteria.
Excitement over Tesla’s possible S&P 500 status has led to a surge in its share prices, as investors look forward to a higher jump in the stock’s value. Academicians from Ohio State University however warn that the positive effect of inclusion on the index has waned in the last decade.
Between 1997 and 2008, the stock price would rise by up to 4.9 percent whenever an index announcement was made. Since 2008, the surge in price has declined by 0.6 to -0.7 percent. In some instances, they warn that the inclusion could also adversely affect some of the company’s governance and informativeness aspects.
To join the prestigious index, the index’s committee made up of S&P Dow Jones Indices members would need to gauge all factors including Tesla’s size and balanced representation. One unique challenge that Tesla brings to the committee’s table is that it is quite massive, at its $281 billion market capitalization.
Morgan Stanley’s Adam Jonas has defined Tesla shares price as a “bull case scenario” upping his price target on them. He has raised his target from $740 to $1,050 and a bull case price from $2000 to $2,500. Adam’s bear case scenario stands at $375 to $281.