Shares in electric car maker Tesla Inc (NASDAQ:TSLA) moved lower in pre-market trading on Monday ahead of what is perhaps one of the most hotly anticipated index inclusions of the year as the firm lines up to join the S&P 500 index when the opening bell rings in New York.
The company, headed by controversial billionaire Elon Musk, was down 4.6% at US$663.32 in pre-market deals, however that it a relatively small dent in what has been a rocket-fuelled ascent throughout 2020, with the stock having risen around 671% since the start of the year.
This means that the company will likely join the S&P 500 as around the sixth biggest constituent by market cap at around US$659bn, behind other major tech giants such as Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB) and Google parent company Alphabet Inc (NASDAQ:GOOG).
The surge has also seen Musk’s own wealth balloon to around US$153.5bn, making him the world’s second-richest man after Amazon boss Jeff Bezos.
Tesla’s addition is expected to lead to a rally in the stock, as funds tracking the S&P 500 are forced to buy shares in the carmaker and sell an estimated US$40-50bn of shares of other companies to balance the index.
However, while Monday may be a boon for Tesla, maintaining its surging market value may prove more difficult than initially thought, as despite notching up five quarters of profitability and car sales approaching Musk’s target of 0.5mln for the year, detractors have bemoaned the company’s governance and accounting while the firm also faces a big wave of new all-electric competition from legacy carmakers next year.
“There is also the possibility that active managers see [the S&P 500 inclusion] as a chance to unload shares onto passive funds at prices near an all-time high,” said analysts at AJ Bell.
However, the broker added that the quality of profits and cash flow at the company is not high due to the contributions of regulatory credits and government tax breaks, which in turn indicated that the core car-making business “is still yet to really make decent profit margins”.
Bitcoin the next frontier?
Aside from the inclusion of Tesla into the S&P 500, Musk now seems to be following the lead of other monied players into the cryptocurrency markets following the recent surge in the value of Bitcoin to an all-time high of just over US$24,000 on Sunday night.
Yesterday, Musk responded to a Tweet by Michael Saylor, CEO of software firm MicroStrategy Inc (NASDAQ:MSTR) and a proponent of investing in Bitcoin, querying whether shifting hundreds of billions of dollars into Bitcoin was possible.
Musk then followed up with several cryptic tweets suggesting an affinity for Bitcoin, although he later appeared to backtrack, tweeting that Bitcoin was “almost as bs as fiat money”.
Bitcoin was down 3.8% at US$22,635 in mid-afternoon trading in London on Monday.