Tesla joins S&P 500, but some say buyer beware

High-flying electric car company lost $1.1 billion during first half of 2019

DETROIT — In the middle of last year, Tesla’s losses were piling up, sales weren’t enough to cover expenses and big debt payments loomed. The situation was so bad that one influential Wall Street analyst raised the possibility that Tesla wouldn’t be able to pay its bills and would have to be restructured financially.

Since then, the electric car and solar panel maker’s shares have skyrocketed, rising about 700% this year alone. 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.

Global sales hit a record of almost 140,000 vehicles in the third quarter, debt has been reduced with proceeds from stock offerings, and Musk’s company is building two huge factories to make new vehicles and satisfy demand. Intensely loyal followers have invested billions, and Musk has become the world’s third-richest man, according to Forbes.

Tesla and Musk have for years engendered strong divisions on Wall Street, and the rise from near-collapse to an astronomical valuation is no exception.

Many investors who drove Tesla’s value higher are individuals who bought the stock after a five-for-one split reduced the price of a single share last summer. The bulls are largely betting on the company’s future and point to five straight profitable quarters, rising sales and world-leading battery and software technology to justify their bets.

Bears, including short sellers who have lost millions betting against the stock, still predict a collapse. They cite limited markets for high-priced Tesla vehicles, repeated quality problems, huge capital costs for factories and growing competition from conventional automakers.

Tesla was among the biggest percentage decliners among all 500 companies traded on the index, tumbling 6.5% to $649.86. Monday. Shares had hit an all-time high Friday.

New York investment manager Ark Invest has consistently predicted Tesla’s meteoric rise. Ark says Tesla has a technology advantage over other auto companies in performance and range of its vehicles. And if Musk makes good on his pledge to reduce battery costs, demand for electric vehicles will rise, with Tesla uniquely positioned to respond at large scale.

“If you look at a company like Tesla, they’re single-handedly in a way sort of making that curve because they’re the largest producer of batteries,” said analyst Tasha Keeney.

Tesla’s lowest-priced vehicle, the Model 3, is pulling buyers from mainstream brands with a base price of $37,990, Keeney said. That can quickly rise above $40,000 or even $50,000 with options.