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Tesla heads to S&P 500 after stock market rally hits fresh high

LaToya Harding
·Contributor
·4-min read
The logo of car manufacturer Tesla is seen at a branch office in Bern, Switzerland October 28, 2020. Picture taken October 28, 2020.  REUTERS/Arnd Wiegmann
Shares in the electric vehicle maker have rocketed almost 700% since the start of the year, hitting all-time highs on Thursday at $655.90. Photo: REUTERS/Arnd Wiegmann

The market value of Tesla (TSLA) has soared to more than $600bn (£443bn), making it the largest company ever to be added to the S&P 500 (^GSPC).

Its inclusion to the bourse on 21 December is expected to trigger a spike in market volatility and a torrent of trading on Friday as index-trading funds snap up shares so their portfolios reflect the index.

Shares in the electric vehicle maker have rocketed almost 700% since the start of the year, hitting all-time highs on Thursday at $655.90.

This has pushed chief executive Elon Musk’s total net worth to more than $150bn as he seizes the title as the world’s second richest person, according to Bloomberg’s Billionaire Index.

The company, which has now had five consecutive quarters of profit, raised $5bn in an equity sale earlier this month to capitalise on a surge in its shares. It was the most popular stock to invest in this year among Europeans, as the company was the most searched for stock in 26 out of 31 European countries analysed by Invezz.

However, Wall Street analysts stand divided on what the S&P listing could mean for shareholders.

Shares in the electric vehicle maker have rocketed almost 700% since the start of the year, hitting all-time highs on Thursday.
Shares in the electric vehicle maker have rocketed almost 700% since the start of the year, hitting all-time highs on Thursday.

The 35 analysts tracked by Refinitiv have an average price target of $396.30 per share, representing a 36% decline from its current price. Target prices range from a high of $774 per share by Elazar Advisors to a low of $40 by GLJ Research.

According to a research note from JP Morgan seen by Reuters, Tesla trades at 175 times its estimated earnings per share over the next 12 months, compared with valuations at 14 times estimated earnings per share for BMW (BMW.DE) and 16 times estimates earnings for Toyota Motor Corp (TM).

There has been mounting speculation this year that Tesla could look to buy out one of its rival car companies. The SpaceX owner addressed rumours earlier this month: “Well, we’re definitely not going to launch a hostile takeover. I suppose if somebody said ‘I think it would be a good idea to merge with Tesla’, we would have that conversation.”

The Tesla boss predicts that 10 years from now almost all cars will be fully autonomous — meaning Level 5 autonomy, where the driver can be completely hands-off the whole time.

Last month, Musk announced that he was aiming to build the world’s largest battery factory at the site in the state of Brandenburg, Germany where he is currently constructing Tesla’s first European car plant.

Watch: Will Interest rates stay low forever?

READ MORE: The five European countries where Tesla isn't the most popular stock to invest in 2020

He was already planning a battery-cell production facility at the Brandenburg site but confirmed that it would begin with a capacity of around 100 gigawatt hours a year, before ramping up to 200 or 250 gigawatt hours a year.

German politicians have expressed major support for Musk’s factory, saying that it boosts Germany’s standing as an attractive business location. Altmaier told Musk in September that the government “will help in whatever way needed to get Tesla's Berlin plant up and running.”

The Gigafactory in Brandenburg is targeting 500,000 vehicles a year at full capacity. Tesla has said it will create around 10,000 jobs.

Musk also said in September that Tesla was developing a radically cheaper new electric car battery, but it would not be ready for about three years.

Gary Robinson, portfolio manager of the Baillie Gifford US Equity Growth fund told Reuters: “It’s become clear this year just how far ahead of the competition the company is in terms of not only its technological abilities but its combination of range and performance at an affordable price,”

Tesla will likely prove to have a more profitable business model than its rivals and post accelerating growth rates in its solar business, allowing its stock to more than double over the next 5 years, he said.

Watch: Tesla begins trading as part of the S&P 500 on December 21