Markets News & Opinions

Tesla Smashes Expectations as Giddy Wall Street Signals $2,000

Tesla secured a net quarterly income of $104 million. It marked the first full year of profitability in the company’s history.

  • Tesla reached four consecutive quarters of profitability, which means it is now eligible for the S&P 500 index.
  • Wedbush Securities executive Dan Ives says a $2,000 bull case for the carmaker is now likely.
  • China is considered as a constant catalyst for the stock in the upcoming months.

In the second quarter of 2020, Tesla secured a net income of $104 million – marking the first four continuous quarters of profitability in the company’s history. Now, it is eligible for consideration to be placed on the S&P 500 index.

According to Dan Ives, an executive at Wedbush Securities,  Tesla is on track to reach $2,000 per share.

Analysts say a confluence of three factors could catalyze the Tesla stock until the year’s end. They are the firm’s profitability in China, eligibility for the S&P 500 index, and high revenues.

The stock price of Tesla rises 4% from $1,592, hitting $1,657. | Source: Yahoo Finance

S&P 500 Eligibility, Robust Financials, And High Profits Set Tesla Strongly For 2021

In the official Q2 2020 financial results, Tesla said its operating margin neared 5% in the last 12 months.

Over time, Tesla said it expects the firm’s profitability to reach industry-leading levels. The company said:

Our profit improved sequentially due to fundamental operational improvements… For the trailing 12 months, our GAAP operating margin reached nearly 5%. We expect our operating margin will continue to grow over time, ultimately reaching industry-leading levels.

In the near-term, it also sets Tesla to be included in the S&P 500. There are five essential requirements to be included in the index:

  1. U.S. company
  2. A market cap of $5.3 billion or higher
  3. The public owns 50% of shares minimum
  4. Profitability over four recent consecutive quarters
  5. Active market

Tesla now meets all five requirements, with the latest quarterly financial results marking four consecutive profitable quarters.

Ives described the performance of Tesla in recent months as a “jaw-dropper,” emphasizing that the stock could hit $2,000.

He said:

This is a jaw-dropper in terms of the levels of profits. I think it just shows the trajectory now. This really puts massive fuel in the tank in the bulls… Now, I think a $2,000 bull case could get hit, given what we are seeing on the bottom line.

The Tesla stock has increased by an additional 4% in after-hours trading after posting a 1.53% gain on Wednesday.

Heightened volatility in the stock prompts popular financial Twitter account to draw comparison with Bitcoin. | Source: Ramp Capital

China is a Big Market for the Carmaker Moving Forward

In the months ahead, Ives noted that China remains a big market for Tesla.

Tesla invested massively in its Gigafactory in Shanghai, which was criticized by skeptics in the past.

Ives said the high level of profitability from cars sold in China, with lowered expenses, could primarily benefit Tesla. He explained:

China, I think profitability on those cars are 10% to 15% higher than in the U.S. and Europe. And they’ve cut some significant costs. And I think that is really the big difference. That is the fundamental driver here. It is not just about the deliveries. It is what you are seeing from a profitability perspective.

The bear case for the stock seemingly comes from a lack of catalysts for further growth. But analysts still consider China as a rapidly-expanding market for the carmaker.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from The author holds no investment position in the above-mentioned securities.

Last modified: March 4, 2021 2:45 PM

Joseph Young

Financial analyst based in Seoul, South Korea. Contributing regularly to CCN and Forbes. I have covered the stock market and bitcoin since 2013. Reach him on Twitter or LinkedIn.