High-flying Tesla joins S&P 500; skeptics say buyer beware
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 the company lost $1.1 billion in
the first half of 2019. The increase is so stunning that even CEO Elon Musk has said 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. 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.
Tesla was among the biggest decliners among all 500 companies traded on the index, tumbling 5.8% to $654.58 Monday. Shares hit an all-time high Friday.
New York investment manager Ark Invest has consistently predicted Tesla’s meteoric rise. Ark says Tesla has an 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.
“If you look at a company like Tesla, they’re singlehandedly 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. Tesla’s upcoming angular Cybertruck pickup, starting at $39,900, will hit a mass market price comparable to other pickups, Keeney said. And Musk has promised battery breakthroughs that will bring a more affordable $25,000 vehicle, she said.
Ark sees Tesla’s shares rising to $1,400 by 2024. The investment firm also sees earnings potential from Tesla one day using its vehicles to run a profitable autonomous robotaxi service. Tesla, Keeney said, is building a huge database of experiences from cars now on the roads, giving it an advantage over competitors including Alphabet Inc.’s Waymo, considered to be the leader in autonomous driving technology.
This all makes little sense to the bears, who 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 shares are in our view, and by virtually every conventional metric, not only overvalued, but dramatically so,” J.P. Morgan analyst Ryan Brinkman wrote in a note to investors. He has a $90 one-year price target on the stock.