Tesla to join elite S&P index, shaking up Wall Street


Team Udayavani, Dec 18, 2020, 12:10 PM IST

New York: Tesla is set to join an elite group of companies in a key Wall Street index, a move that gives greater prominence to the high-flying electric carmaker and forces money managers to reshuffle their portfolios.

The company founded by Elon Musk becomes part of the Standard & Poor’s 500 index on Monday, which means that investment funds based on that index will be holders of the stock.

Tesla stock has already seen a spectacular rise this year of 680 per cent and with a market capitalization of some $600 billion. It will be the richest company to enter the prestigious S&P index.

It is the ninth most valuable firm in the world, just behind Facebook.

Even though its car production is modest compared with rivals, Tesla’s growth prospects have spurred investors to push up its value so that it’s now worth more than General Motors, Ford, Toyota, Honda, Fiat Chrysler and Volkswagen combined.

As a result of the change in the S&P, stock index mutual funds and exchange-traded funds — favoured by many small investors — will need to hold Tesla shares in proportion to its weight in the index, which is currently around one per cent.

This could force some significant reshuffling since Tesla is replacing Apartment Investment, with a value of just 0.02 per cent of the S&P index.

S&P Dow Jones Indices, which manages the index of the 500 firms, said it expects a record shift of some $80 billion with the entry of California-based Tesla.

The change could also encourage “active” portfolio managers who measure their performance against the benchmark index to buy Tesla to keep pace.

But some analysts say these changes may have already been priced into Tesla and that buying pressure for Tesla could diminish.

And sceptics say Tesla could see a long-overdue correction from its dizzying gains.

“We recommend investors not weight Tesla shares in their portfolio in equal proportion to the S&P because Tesla shares are in our view and by virtually every conventional metric not only overvalued but dramatically so,” said Ryan Brinkman of JP Morgan in a research note.

Pierre Ferragu of New Street Research offered a cautious view, noting that “the market is probably getting ready for S&P 500 inclusion, and this probably supported the stock greatly in recent weeks and months.”

This could lead to a pullback for Tesla, according to Ferragu.

But the analyst said Tesla may still be a good long-term bet, setting a price target for Tesla in 2025 at $1,200, compared with $655 at the close on Thursday.

Jefferies analyst Philippe Houchois said Tesla poses some unique challenges for investors because of how it is shaking up the auto sector with its electric vehicles (EVs) and a different way of doing business than rivals.

“We don’t believe Tesla can dominate autos given industry structure and politics, but multiple challenges to the auto business model (EVs, batteries, software, autonomy, design-to-manufacture and direct selling) ensure a durable competitive edge, with a ‘messianic’ brand reaching far beyond autos,” the analyst said.

Udayavani is now on Telegram. Click here to join our channel and stay updated with the latest news.

Top News

Karnataka Secretariat employees to boycott work on Friday, govt calls it ‘illegal’

Padubidri: Woman ends life by jumping into well

Puttur: Man dies of electrocution while cutting trees

Mangaluru: Man kidnapped, beaten up by gang

Infosys CEO Salil Parekh gets 88 pc jump in salary to Rs 79.75 crore

NCP lists eight ‘failures’ of Modi government

Delhi woman plots her own kidnapping to extort money from brother, arrested


Related Articles More

Infosys CEO Salil Parekh gets 88 pc jump in salary to Rs 79.75 crore

Moody’s slashes Indian economy growth forecast to 8.8 pc for 2022

Twitter to pay $150mn penalty for failing to protect user data

IKEA to open flagship store in Bengaluru in June 2022

Vipul Organics hires a veteran of Chemicals Industry as Head of Sales and Marketing

MUST WATCH

NEWS BULLETIN 26-05-2022

Dr. Surendra Kumar Jain atatement about malali masjid

Anjaneeya swamy Temple Mysore

Manipal Road Mishap Student end his Life

NEWS BULLETIN 25-05-2022


Latest Additions

LS secretariat asks estates officer to initiate eviction proceedings against ex-AAP MP Mann

Karnataka Secretariat employees to boycott work on Friday, govt calls it ‘illegal’

Vice President Naidu to visit Gabon, Senegal and Qatar from May 30 to June 7

PM Modi picks Tamil pitch

Eight-year-old Malda girl meets Mamata to thank her for welfare schemes

Thanks for visiting Udayavani

You seem to have an Ad Blocker on.
To continue reading, please turn it off or whitelist Udayavani.