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Driving Change

Tesla milestone would be EV industry's gain

The electric vehicle company's stock is soaring, and it could soon be eligible for the S&P 500.

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Tesla hit a market milestone this week as its stock hovers at epic — and yes, overvalued — heights.

The company is Wednesday reported a net income of $110 million for its second-quarter earnings, with a net profit of $104 million — making it eligible to be listed on the S&P 500, the stock market index of 500 of the largest businesses traded in the United States.

The move would be more symbolic for Tesla than actually be all that financially helpful. Although the potential listing is likely contributing to the stock market surge that's seen Tesla's shares rise from a low of around $360 per share in late March to close to $1,600 per share Monday — that's a crazy run, even for Tesla, one of the most volatile stocks out there. (Tesla's stock actually traded lower Thursday, probably because many analysts had already priced the anticipated earnings into their valuations.)

But the broader symbolism of an S&P listing would be that an all-electric car company has broken through to the mainstream stock index, which includes big automakers such as Ford and GM, oil companies such as Chevron and Exxon and tech companies such as Apple and Facebook. The message: Electric vehicles are a sector that can generate big sales, a major valuation and can pass the financial milestones of some of America's biggest companies.

The broader symbolism of an S&P listing would be that an all-electric car company has broken through to the mainstream stock index.

An expected dip in passenger EV sales is expected this year thanks to the pandemic-induced recession, and automakers have struggled with stalled production in global lockdowns.

But Tesla continues to hit and exceed sales expectations. Its record sales in China have been helping the company diversify its supply and demand globally, and Tesla founder and CEO Elon Musk aggressively has pushed to reopen closed factories (despite a report about worrying coronavirus exposures). 

Tesla's recent success continues to help lift the tide for the various other EV players trying to kickstart their businesses, including Nikola Motors (just went public), Fisker (just raised funding), Rivian (just raised funding) and Xpeng Motors (just raised funding). Although it takes more than initial funding and a public listing to successfully manufacture and sell EVs. 

Of course, we'll see Tesla's stock drop, rise and drop again, as it's done since its listing a decade ago. Even Musk regularly notes when the stock is overvalued. 

But despite the rollercoaster, I would welcome the electrification transportation leader onto the S&P 500 as a sign that EVs are here to stay and are becoming part of the core of our mainstream financial markets and industries.

We'll see if Tesla actually turns a quarterly profit Wednesday and until then, much of this is speculation. But Musk does have a habit of delivering on his story arcs. 

This article is adapted from GreenBiz's weekly newsletter, Transport Weekly, running Tuesdays. It was updated July 23 to include Tesla's 2Q financials. Subscribe here.

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