Tesla (TSLA) S&P 500 Inclusion Could Be Right Around the Corner

Feature image credit: Money Journals

After Tesla reported four consecutive profitable quarters, it could have been added to the S&P 500. However, this did not happen--coming as a surprise to many investors. On October 21, Tesla reported stellar Q3 2020 results--the best quarterly profit to date, and the fifth consecutive profitable quarter.

Cash

• $5.9B increase in Tesla's cash and cash equivalents in Q3 to $14.5B
• Operating cash flow less capex (free cash flow) of $1.4B in Q3

Profitability

• $809M GAAP operating income; 9.2% operating margin in Q3
• $331M GAAP net income; $874M non-GAAP net income (ex-SBC) in Q3

SBC expense increased to $543M (driven by 2018 CEO award milestones)

Operations

• Record vehicle deliveries, profitability, and free cash flow
• Buildout of three new factories on three continents continues as planned
• First step of FSD beta rollout started in Oct. 2020

Following the announcement of a profitable quarter and confirmed expectations that the company will be able to achieve its goal of selling half a million vehicles this year, a number of analysts have been raising their price targets and upgrading the stock.

Tesla's Q3 earnings are up nearly 156% YoY and nearly double what they earned in the 2nd quarter, beating Wall Street's estimates. According to the criteria set by the S&P Dow Jones indices, Tesla is eligible for inclusion in the S&P 500.

CNN Business reports that Dan Ives, an analyst at Wedbush Securities, suggested that Tesla was ignored by the S&P 500 in part because of the large sums of money the company makes from selling regulatory credits. But he also said the results indicate that the company's core business is only getting stronger, and that vehicle deliveries have hit record levels despite the pandemic.

"If there was any sense of doubt about the profitability trajectory, I think that was all put to rest last night with those robust results," he said. Increased demand for the more affordable Model 3, as well as the early success of the Tesla Gigafactory in Shanghai, are good signs for the company's long-term outlook, Ives added.

Hargreaves Lansdown analyst Nicholas Hiett notes that Tesla has a significant 'first mover' advantage and that the potential market is huge.

© 2020, Eva Fox. All rights reserved.

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This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.