Tesla’s (TSLA) long awaited entry into the S&P 500 (^GSPC) got off on a soft note, with the stock tumbling by over 5% in tandem with a broader move lower in markets.
Markets swooned on Monday, tracking declines in European and Asian equities as concerns mounted over a new infectious strain of the coronavirus identified in the UK. The move drove all risk-sensitive assets lower in early dealings. By market close, stocks had recovered though Tesla was still down over 6%.
Nevertheless, the longer-term sentiment on Tesla remains bullish, even as the stock shed $45 to trade near $650. The number of shares currently held in a short position has hit a record low for 2020, according to data from Ortex Analytics, and Wall Street is broadly encouraged by the company’s outlook for next year.
“It’s a feather in the cap for Musk and Tesla to get this,” Dan Ives, managing director of Wedbush securities, told Yahoo Finance Live on Friday.
“Not just in terms of getting into the S&P 500 and what it means from an institutional ownership and indexing,” said Ives. “It’s really about profitability.”
Tesla accounts for about 1.69% of the S&P 500 index. With a market capitalization of more than $640 billion as of Friday’s close, the electric vehicle maker is the largest issue ever put into the index. For every $11.11 Tesla moves, the S&P 500 changes 1 point, according to S&P Dow Jones Indices.
Prior to the market open on Monday morning, CEO Elon Musk tweeted:
Thanks to everyone who worked so hard to make Tesla successful. My heart goes out to you.
— Elon Musk (@elonmusk) December 21, 2020
The electric vehicle maker was added to the index after posting four consecutive quarters of profits.
“That shot of credibility — I think it shows how far we’ve come in the last few years especially in the EV market,” added Ives.
Year to date, the stock is up more than 700%. By comparison, the S&P 500 has gained more than 14% this year while the Nasdaq is up more than 40% year-to-date.
In August, Tesla announced a 5-for-1 stock adjusted split. It also took advantage of its all-time highs to sell stock twice about 3 months apart.
“In those euphoric rides they’ve been able to monetize that, in terms of putting that in the treasure chest,” said Ives.
The entire electric vehicle space has been on fire during the pandemic, buoyed by demand in China and startups like XPeng (XPEV) and Li Auto (LI) coming into the public markets over the summer.
Ives had a base case price target of $560 on the stock, but a 12-18 month bull case price target of $1,000 — “If they continue to execute on China.”
“Right now it’s an arms race in the EV market,” said Ives. “I think we’re going into a golden age for EV.”
Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre
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