Estimated read time: 3 minutes
Publication date: 26th Nov 2020 11:11 GMT+1
One of the top-performing large-cap companies in 2020 is electric vehicle giant Tesla (NASDAQ: TSLA). It has gained a staggering 550% year-to-date and is up a monumental 14,350% since it went public back in July 2010. This means a $1,000 investment in Tesla stock just after its IPO would have ballooned to $144,500 today.
The company’s astonishing performance this year has meant CEO Elon Musk is now the third richest person in the world, according to Forbes. So, what is driving the stock to its record highs in 2020, and is this rally sustainable?
Tesla will soon be added to the S&P 500
Investors are always on the lookout for key company metrics that might drive its stock price higher or lower. For Tesla, some of the most important figures are its delivery numbers as well as earnings growth.
The company recently reported its Q3 figures and another profitable quarter meant it had to be added to the S&P 500 Index. This means shareholders tracking this index will buy significant quantities of Tesla stock in the upcoming days.
According to index experts, Tesla will account for between 1% and 1.5% of the S&P 500 which means investors will buy between $46 billion and $69 billion of Tesla stock in the next month.
A Motley Fool report states, “That amount is so huge that S&P Dow Jones has looked at spreading out Tesla's inclusion over a couple of days. No final decision has been made on that front, but breaking up the move could make it easier for those forced buyers to find willing sellers.”
Long-term growth drivers mean Tesla will continue to crush markets
The world is moving towards clean energy sooner rather than later. There is a good chance that the Joe Biden administration will accelerate the shift towards the adoption of EVs and might also provide buyers with tax credits something that was done during Obama’s reign.
Recently, Wedbush analyst Daniel Ives raised Tesla’s price target from $500 to $560 but provided a bull-case scenario where the stock might even double to touch $1,000 in the next 12-months.
Tesla has reported consistent profits in the last five quarters which has also helped it gain a spot on the S&P 500. The company’s path to profitability as well as a major inflection of EV demand all around the world will continue to be key drivers of Tesla stock in the upcoming decade.
According to Ives, EV sales will account for 10% of auto sales in 2025, up from 3% in 2020. Tesla’s leadership position and its sustained growth in revenue and earnings make it an enviable bet among automobile peers.
The final verdict
Tesla projected to deliver 500,000 vehicles in 2020. However, the pandemic struck and disrupted supply chains as well as hampered sales of the EV giant. In the first nine months of 2020, it has delivered 318,000 cars which means it is unlikely to reach its initial forecast for this year.
However, it is a matter of time before which the company will reach the 1 million delivery mark on an annual basis. Its stellar run in 2020 has meant there is a significant amount of growth baked into Tesla’s stock price. It's trading at a lofty valuation and it might time for a breather, leading to a temporary pullback in the world’s largest automobile company (albeit only in terms of market cap).
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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