Tesla stock whipsaws amid S&P 500 speculations

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Tesla stock skyrocketed 14% on Monday on speculations that it will be added to the S&P 500. However, the shares plunged into the red briefly in the afternoon in a wild day of trading before climbing back into the green before the market closed.

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Tesla stock approaches $1,800 on S&P 500 speculations

Tesla stock soared to a new record high of $1,795 a share, carrying the company's market capitalization to as high as $321 billion, according to FactSet. That made the automaker the tenth biggest U.S. stock based on market value.

The shares have been on an impressive run. Year to date, Tesla stock is up more than 300%. The company passed Toyota to become the most valuable automaker in the world earlier this month. In July alone, the shares are up by over 55% since the company beat delivery expectations for the second quarter.

Tesla delivered about 90,950 vehicles during the second quarter, while the FactSet consensus was at 72,000. The automaker will report its second-quarter earnings on July 22, and investors now expect it to report a fourth consecutive quarter of GAAP profits. That could make Tesla stock eligible to be included in the S&P 500.

According to CNBC, some like Larry McDonald of The Bear Traps Report believe Tesla stock is climbing because investors expect it to be added to the S&P 500 rather than based on fundamental strength. He said in a recent note that by buying Tesla stock now, some are forcing the S&P Indexes to boost its weighting. That will force exchange-traded funds and indexes to pay up by buying even more shares.

"Then the hot money exits, leaving indexes holding the bag," he said.

Analysts on Tesla stock

In a note this morning, ARK Invest analysts said that during the first half of this year, Tesla's share of the battery electric vehicle market in China hit 21%, compared to the 6% it was at last year and 2% in 2018. They said it looks like concerns about the automaker's ability to sell lower-end cars in China were misplaced.

Globally, Tesla's market share climbed by about 300 basis points from 23% last year to 26%. ARK Invest analysts said investors used to ask them what will happen to the automaker when traditional automakers start selling electric vehicles. However, the firm now wonders how high Tesla's market share will go. Their base case assumption is at only 19% in 2024.

Short sellers have continued to bet against Tesla. Data from S3 Partners indicates that Tesla is the biggest short position on record for any U.S. company at $19 billion.

According to Forbes, Morningstar estimates that Tesla stock is 91% overvalued. The firm assigns a fair value estimate of $731 to the shares. Analyst David Whiston doesn't expect the company to reach mass-market volumes until the next decade. He pointed out that "even a pandemic causes no fear for the market with this stock," adding that it's important to keep the hype about the company in perspective compared to its "limited, though now growing production capacity."