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Tesla (NASDAQ:TSLA), the pre-eminent manufacturer of EVs, suffered a setback on the 4th of September when it was revealed that, as part of its September quarterly rebalancing, S&P Dow Jones Indices did not incorporate Tesla in the benchmark S&P 500 index.
Bear in mind that optimism surrounding Tesla’s possible inclusion in the benchmark index had played a vital role in pushing the stock to an unprecedented zenith. As an illustration, before the rout witnessed at the beginning of September, Tesla was up a whopping 479 percent since the beginning of the year.
Now, however, Wall Street is adopting a more cautious tone vis-à-vis Tesla. As an illustration, Bernstein analyst, Toni Sacconaghi, termed the company’s valuation “mind-boggling” in a fresh note published today. While Sacconaghi remains bullish when it comes to the secular trend favoring EV adoption as well as Tesla’s structural advantages in branding and distribution spheres, he has adopted a much more somber tone regarding the company’s valuation, noting that:
“…Tesla's current valuation is "mind-boggling," with its enterprise value now surpassing Toyota (TM) plus Volkswagen (VWAGY).”
The analyst went on to note that, for further upside potential from the current valuation, Tesla will have to “achieve 15%-plus operating margins at 10M-plus cars”. Other risks include the specter of cannibalization of sales between the Model 3 and the Model Y as well as the advent of new competition.
As far as Tesla’s exclusion from the S&P 500 index is concerned, Baird analyst, Ben Kallo, claimed that the decision was surprising given that the EV giant had met the stated criteria for inclusion. While Kallo believes that it is only a matter of time before Tesla is able to secure a place in the benchmark index, the development will continue to act as a dampener on the stock in the short-term. Accordingly, the analyst has maintained an overall ‘Neutral’ rating and a stock price target of $332 for Tesla.
As stated earlier, Tesla’s stock price is currently plummeting. Following a 4 percent-plus fall in the after-hours on Friday, the shares appear to be extending their losses in today’s pre-market trading session. As an illustration, the stock is currently down over 14 percent or $59.84.
As far as positive developments are concerned, we noted in a previous post that, as per Tesla’s filings with the SEC, the company has entered into an equity distribution agreement with major Wall Street players in order to sell shares worth at least $5 billion. As a refresher, the agreement allows a publicly-traded company to raise additional funds by selling new shares directly to a financial entity, with the sale occurring in defined lots or tranches over a specified period of time. Today, Tesla filed Form 8-K with the SEC, noting:
“On September 4, 2020, Tesla, Inc. completed the sale of $5.0 billion (before commissions) of its common stock through its “at-the-market” offering program previously disclosed on September 1, 2020. The final settlement of the shares sold is expected to be completed by September 9, 2020.”