Tesla’s market cap has increased by more than $500 billion in 2020, and is now worth as much as the combined market cap of the nine largest car companies globally.
Monday morning it joined the prestigious S&P 500 index with a market value of over $600 billion. It's the largest addition in the history of the index.
Tesla's rise to become the world's most valuable automaker and rank among the top 10 biggest U.S. companies is a surprising accomplishment considering that the company lost $1.1 billion in the first half of 2019. The increase is so stunning that even CEO Elon Musk has said the shares are overpriced.
However, some skeptical Analysts consider Tesla's valuation absurdly high. On paper, Tesla is worth more than Toyota, Volkswagen, General Motors, Ford, Fiat Chrysler, Nissan and Daimler combined. Tesla’s market cap has increased by more than $500 billion in 2020, and is now worth as much as the combined market cap of the nine largest car companies globally
Some Analysts have an opinion that the stock is significantly overvalued at current levels. Tesla trades at about 15x projected 2021 Revenue and about 175x projected earnings. There’s little precedent for this sort of a valuation in the highly cyclical and capital intensive auto industry in recent history. In fact, using the industry average P/E of about 15x , Tesla would have to post over 2x the profits of the top ten automakers combined to justify its valuation.
For perspective, the top ten automakers by sales posted net profits of under $20 billion over the last 12 months. The electric-vehicle maker, which now represents 1.6% of the index and ended the day as its sixth heaviest-weighted stock, fell as much as 7% as it retraced gains from Friday when tens of millions of shares were purchased by index-fund managers. Tesla budged the S&P 500 Index by about 4.1 points of its total 14.49-point drop, according to data compiled by Bloomberg.
“There is strong precedence for positive returns for stocks prior to S&P 500 inclusion and post announcement, but very limited precedent for near term outperformance post inclusion,” Sanford C. Bernstein analyst Toni Sacconaghi wrote in a note earlier this month.
However, Bullish analysts are expecting the rally to resume soon, although possibly at a slower pace.
Tesla's membership in the S&P 500 won't affect the index's valuation very much, but its outsize volatility will have a "small mechanical impact" on its overall performance, Goldman Sachs analysts said in a note on Wednesday. The team found that had Tesla joined the index at the start of the year, its massive rally would've lifted its total returns by 2 percentage points.