Tesla Q2 Profit Could Steer Elon Musk's Carmaker Onto The S&P 500, Triggering 'Significant' Market Reaction

Tesla could find its path onto the S&P 500 later today if it posts a GAAP profit for the second quarter, a move that could trigger 'significant' buying.
Author:
Updated:
Original:

Tesla Inc.  (TSLA) - Get Report founder and CEO Elon Musk could steer his company onto the S&P 500 later this year, and justify one of the most electrifying moves in U.S. market history if the clean-energy carmaker can post a quarterly profit after the close of trading Wednesday.

Tesla will clear a significant hurdle towards its inclusion on the benchmark if its able to publish a GAAP profit for the second quarter after the close of trading Wednesday, a figure that would mark four consecutive quarters in the black for the Palo Alto, California-based carmaker. 

The company took a giant step towards that goal last week when its reported stronger-than-expected quarterly deliveries of 90,650 units, a figure that topped Street forecasts even amid a six-week shutdown of the carmaker's Freemont, California production facility and a sharp 34% decline in overall U.S. auto sales. 

Analysts are split as to whether Tesla can make the leap this fall, however, with second-quarter estimates ranging from an adjusted loss of $2.53 per share to a profit of $1.79 per share. Revenue forecasts run the gamut between $2.8 billion and $6.2 billion.

Tesla shares were marked 3% higher in early Wednesday to change hands at $1,613.00 each, a move that would extend the stock's year-to-date gain past 280%.

Tesla, which assumed the mantle of the world's most-valuable carmaker last month despite its modest -- less than 1% -- contribution to total global sales, will sell, at most, 500,00 cars this year. Ford Motor Co.  (F) - Get Report, which has a market value that is ten times less, will likely shift 2.2 million vehicles and Toyota Motor Co.  (TM) - Get Report, with a market value of $205 billion, will sell 10.7 million.

Tesla, in fact, added nearly twice the value of Ford and General Motors  (GM) - Get Report combined to its own stock price this month alone, with a 50% gain that's tacked some $90 billion onto its market cap. 

Credit Suisse analysts suggest the S&P 500 inclusion could trigger even more activity in Tesla stock, with 'significant' incremental buying of around 18 million shares -- some 10% of its outstanding total -- from passive investors and fund managers that track the benchmark index.

The bank noted, however, that S&P Dow Jones committee members might struggle to accommodate Tesla's bulk: with a market cap of $300 billion, adding it to the index presents a challenge not seen since Facebook Inc.  (FB) - Get Report was squeezed onto the index in 2013 with a market cap of $120 billion. The committee is set to re-balance the index on September 21, but normally updates investors on new entrants a week four trading prior to the re-set. 

Should Tesla gain entry into the S&P 500, its market value would sit just below that of Procter & Gamble  (PG) - Get Report and Mastercard  (MA) - Get Report, placing it just outside the benchmark's top ten, comprising around 1.15% of the benchmark's $25.24 trillion total market capitalization.  

Musk, who co-founded Tesla in 2004 with a $6.5 million investment, will still be inline for another annual windfall even if S&P Dow Jones defers its decision until 2021. 

Tesla shares have averaged a market cap of $150 billion for the first six months of the year, triggering the vesting of stock options awarded to Musk in 2018 -- the right to buy 1.69 million shares at $350.02 each -- that is now worth $2.1 billion. 

To prepare for Tesla earnings, follow Tesla Daily on TheStreet as the innovative auto company reports earnings after the bell Wednesday.