Tesla Stock Vs S&P 500

S&P 500 Vs Tesla Stock: Founded in 2003, Tesla [NASDAQ: TSLA] creates electric vehicles, batteries, and residential/commercial solar applications. The company is a relative newcomer in the auto industry, but it started 2020 with an $89-billion market capitalization, more than both rivals General Motors and Ford combined. This is thanks to its stock price more than doubling at the end of 2019.

Competition is coming in strong, however, with major competitors including Toyota and GM introducing new all-electric vehicles to the market. This leaves the Silicon Valley carmaker competing for EV dominance while the future of autonomous vehicles is cloudy. These uncertain market factors leave fear, uncertainty, and doubt about the cloudy future of this bright company.

So, are you better off investing in Tesla or the S&P 500 market index?

Here’s everything you need to know about Tesla stock vs S&P 500 as an investment tool in your portfolio.

S&P 500 vs Tesla Stock: Pros and Cons

Even though Tesla is a buzzworthy company, it’s not a part of the S&P 500 index. This market index measures the performance of the 500 largest publicly traded companies in the U.S. and returns annual dividends of 9.8% on average.

The S&P 500 is often used as an indicator of the general stock market performance. Its value is updated every 15 seconds, and the index is maintained by the S&P Dow Jones Indices. There are three minimum criteria that must be met for inclusion into the S&P 500,

1. Market capitalization over $8.2 billion.

2. Annual dollar value traded to float-adjusted market capitalization over 1.0

3. Monthly trading volume of at least 250,000 shares for each of the prior six months.

Although Tesla is one of the most valuable companies in the U.S., it hasn’t been profitable long enough to be a part of the S&P 500. It only just barely posted a profit in 2019, but it wasn’t profitable for the entire year. It still needs at least one, if not two, more profitable quarters before it’s considered.

Until then, investors have to choose between investing in Tesla as an individual stock or the S&P 500 as a market index. So, let’s break down the pros and cons of investing in each choice.

Is Tesla Stock A Better Buy?

Tesla is a modern car manufacturer based in Silicon Valley. The company’s Co-Founder and CEO Elon Musk is a household name for his charisma and constant social media presence. Tesla was the best-selling electric passenger car manufacturer in 2019, owning 80% of the market. Its car models include the Model S, Model 3, Model X, and Model Y. The company hit historical sales highs in 2018 and 2019, signaling strong market support for EVs.

Tesla unveiled the Cybertruck, an all-electric light commercial vehicle, in late 2019. It will have an estimated range between 250-500 miles, and it instantly became an internet meme upon the unveiling of its PS1-era polygon look.

Despite the strange appearance, Cybertruck has 500,000 pre-orders, according to unofficial data. Pre-orders this strong give confidence of sustainable profits for the next few years.

Other Tesla projects include the Powerwall and other power storage options created in Giga factories around the world. It owns a large network of over 15,000 superchargers around the world that charge its vehicles. It also acquired Solar City and manufacturers a variety of residential and commercial solar applications.

Tesla has previously partnered with car manufacturers like Toyota and Daimler AG on electric vehicles. However, each of them has opted for in-house EV development over time. GM recently launched its own competing EV battery platform it’s hoping to license and compete with Tesla on.

Should You Invest in the S&P 500?

The S&P 500 was created by Standard & Poor in 1957 as a method of tracking the top-performing stocks listed on the New York Stock Exchange and NASDAQ. It’s generally used as an indicator of the overall health of the stock market. For example, the S&P 500 dropped 57.7% in value during the foreclosure crisis and Great Recession of 2007-2009.

It since reach historic highs during the 2010s, gaining over 400% in value during the decade.

Investing in the S&P 500 is done through an index fund (e.g. SPY). This can be done through your bank, a brokerage, financial advisor, or robo advisor. It’s a popular option simply because of the diversity of stocks available in the index. If a stock fails to perform up to expectations, it can be dropped and replaced with a more profitable company.

If Tesla should remain profitable through Q2 2020, it will most likely be added to the S&P 500 for showing sustainable profitability. This means another company will be removed from the bottom. Potential removals include Nordstrom, News Corporation, Discovery, Harley-Davidson, and News Corporation.

The downside of the S&P 500 is it’s still very much tied to the stock market. Investments like bonds, commodities, cryptocurrency, and real estate aren’t included in this index. You’ll still need to diversify your investments to maintain your portfolio’s financial viability.

S&P 500 Vs Tesla Stock: The Bottom Line

Deciding between Tesla stock vs S&P 500 is a tough decision right now only because it is not currently a part of the index. However, the company is on a hot winning streak lately and already reported two full quarters of profitability.

Pre-orders of its Cybertruck are high, and it’s continuing to innovate in residential solar applications, electric vehicles, and autonomous driving.

If/when Tesla is accepted into the S&P 500, its stock price will continue driving upward. This is because S&P investors will purchase large volumes of the stock in order to maintain a strong hold of the full S&P 500.

A company typically lasts an average of 33 years in the S&P 500, and becoming a part of it drives a 5% increase in stock prices. If you’re already holding Tesla stock, you may have a financial windfall coming your way. Otherwise, it may be best to stick to the S&P 500 for the sake of diversification.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.