Tesla, Wall Street's Favorite Short, Ready For S&P 500 Debut As Most Valuable Inclusion

Tesla is set to become the most valuable company to ever be added to the S&P 500 next week as Wall Street's most polarizing stock ends its extraordinary year with a dramatic victory over its many critics.
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Tesla Inc.  (TSLA) - Get Report extended gains Friday as Wall Street's most polarizing stock prepares for its debut on the S&P 500 next week as the benchmark's sixth-largest company with a market value of more than $640 billion.

Tesla shares have risen nearly 700% so far this year as Elon Musk's clean-energy carmaker posted consecutive quarterly profits, rolled out manufacturing bases in China and extended its commanding share of the electric vehicle market. At the same time, however, it's also been Wall Street's most shorted stock, with analysts questioning its sky-high valuation and relatively low profit margins while betting billions against its meteoric rise.

Not that this has been a winning strategy; analysts at S3 estimate short sellers of Tesla stock have lost more than $30 billion this year alone, with around a fifth of that total coming from the November 16 decision to add the stock to the S&P 500 starting from Monday.

That hasn't stopped many from trying, however, including analysts at JPMorgan, who tagged a $90 price target on a stock trading near $700 each last week, calling it "not only overvalued but dramatically so" thanks to a PE multiple of 170 times its 2021 estimate, a figure that is more than 8 times higher than the S&P 500 average. 

JPMorgan analyst Ryan Brinkman advised clients not to increase their holdings in Tesla to its approximate 1.44% weight in the benchmark, even as the bank itself suggests that index-tracking funds will sell $57 billion worth of shares in other companies in order to gather up Tesla shares before its December 21 entry.

Tesla shares were marked 4.1% higher in early trading Friday, its last outside the S&P 500, to change hands at $683.00 per share, a level that values the Palo Alto, California-based group at around $645 billion.

Tesla gained inclusion to the benchmark after stringing together four consecutive quarters of profit -- no small feat in a car market that has been decimated by the global coronavirus pandemic -- may be on track to meet its 2020 target of 500,000 car sales, a figure that would require fourth quarter deliveries of 166,000, after solid sales from China, the world's biggest EV market.

Tesla will be the biggest inclusion to the S&P 500 on record, sitting just ahead of Warren Buffett's Berkshire Hathaway  (BRK.B) - Get Report and around $200 billion below Facebook  (FB) - Get Report on the U.S. benchmark.

It will also likely be the most active, with an average daily volume of around $18 billion shares over the past twelve months, well ahead of Apple Inc.'s  (AAPL) - Get Report $14 billion.