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ETFs In Focus As Tesla Passes $1T Mark

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·4 min read
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Shares of Tesla soared this week, sending the market value of the electric vehicle maker past $1 trillion for the first time. The move put Tesla in rarified air, joining tech behemoths like Apple, Microsoft, Google, Amazon and Facebook as the only U.S. public companies to eclipse that level.

News that rental car company Hertz placed an order for 100,000 Teslas for delivery over the next year was the latest catalyst for the stock. The order, which is worth $4.2 billion, per Bloomberg, could account for 8% of Tesla’s vehicle production in 2022.

The big purchase came on the heels of positive earnings numbers from Tesla for the third quarter. The company grew revenues by 57% to $13.8 billion in Q3 and grew earnings per share by 145% to $1.86.

Perhaps most importantly, the firm delivered 241,300 vehicles in the third quarter, up 73% from a year ago—an accomplishment at a time in which global chip shortages and logistics headaches are making it tough for manufacturers to deliver products.

Rapid Ascent
Tesla’s ascent to the $1 trillion market cap level has been fast and furious. The company was valued at $669 billion at the start of 2021 and only $75 billion at the start of 2020. In fact, Tesla was in dire straits for much of the past several years.

Founder and CEO Elon Musk tweeted in November 2020 that the company was as close as a month away from bankruptcy during its toughest moment:

Since then, Tesla has completely turned itself around, registering profits in the past nine quarters. Thanks to the company’s newfound profitability, the stock was added to the S&P 500 last December—the largest firm to ever be added to the index. Since then, the stock has appreciated 68%, bolstered by strong operating results and rabid enthusiasm for all things related to Elon Musk.

Multitrillion-Dollar Potential?

Musk, who also founded SpaceX, The Boring Company and Neuralink, has become a highly influential figure in the world of business and investing. A single tweet from Musk can move markets, from stocks to cryptocurrencies.

He was instrumental in helping push the market value of Dogecoin—a “memecoin” started as a joke—to nearly $90 billion. His cultlike following has helped Tesla become something of a meme stock itself, but the company’s strong operating results fueled by Musk’s brilliant execution prove that it’s not just another GameStop or AMC.

Tesla’s biggest bulls, such as ARK’s Cathie Wood, see it becoming a multitrillion-dollar company. ARK sees the company as not just a play on electric vehicles, but on autonomous ride hailing and auto insurance.

Because of its multiple growth opportunities, bulls believe shares of Tesla should be valued more like a high-multiple tech company than a traditional automaker. ARK has a 2025 price target of $3,000 for Tesla, about three times higher than current levels.

Bearish Views

To be sure, Tesla is not without its detractors. More than a quarter of Wall Street analysts have a “sell” rating on the stock. Price targets are as low as $67/share, with many clustered below $400—less than half of Tesla’s current share price.

J.P. Morgan analysts, who have an “underweight” rating and a $250 price target on Tesla, acknowledge that the company has “a highly differentiated business model, an appealing product portfolio and leading-edge technology.” However, they believe the firm faces competition and execution risks as it expands into mass market segments of the auto market.

The analysts see the stock as overvalued relative to its growth prospects.

Bears who see Tesla more like a traditional car company point to the valuations of Toyota, GM, Ford and others—who trade at single-digit P/E ratios versus 100x for Tesla—as evidence that Tesla shares are too expensive.

ETFs That Hold TSLA

While the bulls are clearly in charge, Tesla remains a battleground stock, with a wide range of views about where the stock could end up five or 10 years from now.

In any case, with the market cap of more than $1 trillion, the stock can’t be ignored. Only four publicly traded U.S. companies are currently larger—Amazon, Google, Microsoft and Apple.

Market Caps
Market Caps

(For a larger view, click on the image above)

Tesla’s weighting in S&P 500 ETFs like the SPDR S&P 500 ETF Trust (SPY) and the iShares Core S&P 500 ETF (IVV) is a modest, but notable, 1.9%. In other ETFs, it’s even bigger.

According to ETF.com’s stock finder tool, TSLA makes up 16% of the Simplify Volt RoboCar Disruption and Tech ETF (VCAR), 16% of the iShares U.S. Consumer Staples ETF (IYK), 14% of the Consumer Discretionary Select Sector SPDR Fund (XLY) and 12% of the ARK Autonomous Technology & Robotics ETF (ARKQ).

To find out what other ETFs hold shares of Tesla, check out the ETF.com stock finder tool or read Jessica Ferringer’s recent article on the topic.

Email Sumit Roy at sroy@etf.com or follow him on Twitter sumitroy2

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