Analysts Weigh In Ahead of Tesla’s S&P 500 Inclusion

Analysts Weigh In Ahead of Tesla’s S&P 500 Inclusion

by Gill D on December 16, 2020

Tesla stock has exciting news all year with the share split in August and sky high share prices. And when Tesla joins the S&P 500 in a few days’ time, it is expected to increase volatility of the index as well. Analysts are now weighing in on what we can expect to see with the Tesla share price as the year starts drawing to a close.

Some strategists are positive while others think its share price will plummet. Gordon Johnson, CEO, and founder of GLJ Research in particular feels that Tesla’s stock is just too high saying it should be sitting between $60-$80 instead of $600 a share. He is of the opinion that we will see a few factors affecting the electric car maker’s stock price. Johnson said it is possible that with Tesla’s inclusion to the S&P 500, shareholders may start pulling back on investing in Tesla shares.

He also refers to patterns analyzed with other companies such as Tilray (TLRY), which saw a surge in its share price to $150 only to nosedive to $7.37 a share. Another example he cited was SunEdison, a renewable energy company that had to file for bankruptcy in 2016 after its stock price dropped 99% within 12 months. While it seems a bit far-fetched to imagine Tesla going bust when its CEO has a personal worth of over $130 billion, Johnson feels the EV company is a prime candidate for its stock to plunge.

Earlier this week, the Tesla CEO raised eyebrows after his emails to staff were leaked to the public regarding a temporary halt on the production lines for the Model S and Model X. Johnson says the decision is baffling considering Musk’s previous comments that Tesla had to significantly increase production to meet targets. The decision might make investors nervous because it could indicate there is a problem.

Johnson also said that Wall Street is underestimating Tesla’s deliveries on purpose. Johnson says that Tesla Q4 deliveries will be around 180,000 but other analysts feel it will be lower. This lets Tesla exceed expectations and therefore boost its stock price.

However, not everyone is agreeing with Gordon Johnson that Tesla is a big risk. In fact, there is widespread belief that the EV giant will continue to be a developing success story. At the start of December, Tesla got $5 billion from the equity markets to reduce debt and ensure its Giga factories are built. With Musk raising sufficient capital to solidify its balance sheet and capital structure puts the company is a good position for its cash flow.

But Johnson highlighted that other issues come into play as well such as Tesla losing market share in China as Nio, the Chinese EV manufacturer starts making it mark in the country. Yet, other says that Tesla still has growth potential in Asia regardless of domestic players ramping up efforts because the Shanghai Giga factory gives the US-based car company a major competitive advantage.

Together, Nio and Tesla trade around 200 million shares daily due to young investors wanting a piece of the EV pie. But these stocks are not one in the same. Tesla (TSLA) went public more than 10 years with a $17 share price and since then, it has been through the wringer on Wall Street. Nio, on the other hand, made its US market debut only 2 years ago.

Tesla has established itself globally with an almost cult-like following and Nio still has to get into the minds of EV drivers to even start making a dent as big as Tesla had. Both of these companies still have long-term potential and will remain core players as the electric vehicle market continues to grow, but Tesla has is already two steps forward leaving Nio to cover a lot more groundwork.

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