Tesla Inc’s (NASDAQ:TSLA) surge toward the S&P group of indices reflects it being regarded as a tech rather than a car company, according to ETF group Hanetf.
To qualify for S&P inclusion, Tesla needed to be profitable for four consecutive quarters, something that it confirmed last night with its latest batch of numbers.
Anthony Ginsberg, the co-creator of the HAN-GINs Tech Megatrend Equal Weight UCITS ETF (ITEK), believes going forward an increasing chunk of Tesla’s earnings will be generated via its intellectual property (IP) in areas of battery technology and autonomous driving.
IP advantages and operating the world’s largest battery factory, means Tesla is likely to become the primary seller of such technology to other car manufacturers, says Ginsberg, especially as it is unlikely ever to match the mass volumes sold by the other carmakers
Ginsberg said: “Earlier this month, Tesla became the world’s most valuable car company surpassing Toyota.
"Tesla is now larger than General Motors, Honda, Ford, Daimler and Harley Davidson combined, and we see its profit margins increasing over the next few years.
“The company is benefiting hugely from developments in battery technology and the direction of government environmental and urban planning policies.”
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said Tesla benefited in the past quarter from the tailwind of increasing sales in China and increased recognition of software revenues, but even so the numbers were impressive.
Joining the S&P indices would open up a whole new audience of potential investors, says Hyett. However, he notes that the electric car giant has enjoyed a spectacular run already this year, rising 270%, and while questions about the group’s long term future may be a thing of the increasingly distant past its valuation remains a sore point for many.
UBS was more cautious also on valuation grounds, saying while solid enough it is arguable whether the latest quarterly numbers were sufficient to justify the elevated share price.
The broker has a hold recommendation and US$800 twelve-month target price or half the US$1,592 close last night.