At 6:44 p.m. EST Monday, the news hit the wires: Tesla (TSLA) is finally joining the S&P 500.
If you recall, the S&P Dow Jones Indices’ index committee’s failure to include Tesla in its index of America’s 500 largest companies back in September contributed to the stock’s muted performance that month. Indeed, the day the S&P announced its decision, Sept. 8, saw Tesla stock plummet 21% in value in a single day — a dramatic decline that tells you just how much investors had been banking on Tesla “making the cut,” and on index funds and ETFs that track the S&P 500’s composition being forced to buy the stock when it became included.
On Monday, however, the index committee rectified that oversight, announcing that Tesla will in fact be added to the S&P 500 index on Monday, Dec. 21, “to coincide with the December quarterly rebalance.” It has not yet been decided what other company will be removed from the index (to keep the number steady at “500,” if Tesla’s going in… someone else has to fall out). Nor has it been decided whether Tesla will join the index all at once on Dec. 21 or, because of the size of the company and its potential to shift the value of the index, be added more gradually, “in two separate tranches ending on the rebalance effective date.”
Responding to the news, Wedbush analyst Daniel Ives called S&P’s decision “a major feather in the cap for the Tesla bulls,” surmising that the index committee may have held off on adding Tesla to the index while waiting to see whether Tesla could sustain and extend its streak of profitable quarters. When Tesla reported a $331 million net profit on Oct. 21, though, that put all such concerns to bed.
Nonetheless, says Ives, and regardless of how Tesla’s stock price reacts on Tuesday, he is maintaining only a “neutral” rating on Tesla stock, and a price target of $500 a share. (To watch Ives’ track record, click here)
Why not “buy” Tesla? Why not give the stock a higher price target?
Ives cautions that the electric vehicle revolution is “still in the very early innings.” With only about 3% of total global automobile sales being of electrics at present, it may be too soon to declare Tesla the out and out winner in this market (all evidence to the contrary so far notwithstanding). While Ives does believe that “EV auto sales could disproportionately benefit as more consumers purchase an array of EV models hitting the road in 2021,” many of those models are from manufacturers not named Tesla.
It remains to be seen which manufacturer will win the bulk of the market in Europe and in China. China in particular, says Ives, “could represent up to 40% of overall deliveries for Musk & Co. in 2022,” and be worth as much as $80 a share to the stock — but only if Tesla wins the market there.
Overall, the battle seems to be torn between the bulls and bears as TipRanks analytics demonstrate the electric car giant as a Hold. Based on 28 analysts tracked in the last 3 months, 9 rate TSLA a Buy, 10 say Hold, while 9 recommend Sell. With a potential downside of 14%, the stock’s consensus target price stands at $380.13. (See Tesla stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.