Tesla (NASDAQ:TSLA) stock enjoyed a wild ride over the past quarter. That’s in part due to the novel coronavirus. Additionally, as is often the case with Tesla, the company’s larger-than-life CEO, Elon Musk, has generated all sorts of attention.
Musk has been a vocal figure, offering various commentary about the country’s handling of the virus. He has also used Tesla resources to help battle the country’s ventilator shortage.
The virus has seemingly had a negative impact on Tesla’s operations, though. With the Fremont factory shut for much of the quarter, analysts are worried that Tesla may lose money this quarter given the lack of production. That, in turn, would have a negative impact on Tesla’s outlook.
Musk didn’t take that lying down. Instead, he got into a public spat with local authorities in California that had ordered that the Fremont factory remain closed for precautionary reasons. Even with the factory now running again, Musk still seems frustrated. He’s talking about upping production in Nevada and building a new plant in Texas.
So, what does it all mean for TSLA stock going forward?
Heading to the Lone Star State
Reports surfaced last week suggesting that Tesla will build its next vehicle plant in or near Austin, Texas. Musk is apparently eager to produce the new cybertruck there. So eager, in fact, that he wants to get the plant built in time for production to start by the end of the year. In 2021, production could be further increased in phases as the plant gets fully up and running.
This would be an incredible feat, moving even faster than Tesla’s factory in China. As Musk’s Twitter discussions over the last week showed, he’s grown increasingly frustrated with the business climate in California. While it may be a great place for programming jobs, there are more obstacles to heavy industry.
Musk is making a shrewd move diversifying the company’s geographic production base. And in Austin, he may find a local climate with an agreeable mix of technical expertise and hands-off government, along with lower taxes.
S&P 500 Index Inclusion
One big catalyst for Tesla’s shares going forward is the possible inclusion in the S&P 500. Passive investing has become a dominant force in the world. And there’s no greater index out there than the S&P 500. Getting included in that will cause billions of dollars of investor capital to flow into a large company like Tesla.
You might be wondering why Tesla isn’t already part of the S&P 500. After all, the current threshold to get into the index is around $8 billion, so Tesla clears that many times over.
However, there’s also a profitability requirement. A company must earn a profit, in aggregate, over its trailing four quarters and also in the most recent quarter to be eligible to join the S&P 500. Tesla, by contrast, has earned profits in three of the past three quarters, but is still, on net, unprofitable over the past year due to a large loss in Q2 of 2019.
That will roll off the calculation when Tesla issues its next report. But the company needs to earn a profit this quarter as well to get into the S&P 500.
Analysts have speculated that this explains why Musk was so insistent on getting the Fremont plant reopened. Analysts are forecasting a loss this quarter, which is only logical given the virus impact, but if Tesla can pull a surprise profit, it’d be heading straight into the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) and other key ETFs.
That pent-up buying pressure alone could push Tesla stock to $1,000 quickly. And, notably, once you get in, you tend to stay in; Tesla would not get booted out for being intermittently unprofitable in the future. Ford (NYSE:F), General Motors (NYSE:GM) and other automakers stay in the index despite uneven profits, after all.
TSLA Stock Verdict
Tesla stock is in a fascinating place heading into the next quarterly earnings report. There’s a ton riding on the line, because if Musk can pull off profitability this quarter, it opens a whole new world of institutional money that will come flooding into Tesla stock.
If you’re long shares now, that’s a fantastic catalyst. The stock should easily retest the old $968 high and make a run at that nice round $1,000 target.
As this plays out, keep an eye on an exit strategy for the stock. And for Tesla skeptics, if you are so inclined to buy puts or take a short position, wait for that key technical resistance area up around $1,000 per share.
You’ll have natural selling pressure at that point, plus you’ll have people taking profits on the news, assuming Musk successfully navigates Tesla into the S&P 500 index this quarter. That looks like an inflection point that could mark a major top in the stock price.
But for now, fortune still favors the Tesla bulls.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.
