Tesla 2Q 'Earnings Surprise'... Countdown to S&P 500 Inclusion (Comprehensive)

Q2 Net Profit of $104 Million, 4 Consecutive Quarters of Profit
S&P 500 Inclusion Criteria Met... Possible Inclusion as Early as September
Sales Too Low Compared to Market Cap and COVID-19, Future Performance Variables

[Image source=AP Yonhap News]

[Asia Economy New York=Correspondents Baek Jong-min and Lee Hyun-woo] U.S. electric vehicle company Tesla continued its unstoppable momentum by announcing a surprise profit in the second quarter. It achieved an 'earnings surprise,' surpassing market expectations that predicted losses due to the impact of the COVID-19 pandemic. With this profit, Tesla has set a record of four consecutive quarters of profitability. This means it has met the conditions for inclusion in the S&P 500 index, a long-held goal.

According to foreign media such as CNBC on the 22nd (local time), Tesla announced that its net profit for the second quarter reached $104 million (approximately 124.7 billion KRW), achieving four consecutive quarters of profitability. Wall Street had previously forecasted that Tesla would find it difficult to post profits due to the overall shutdowns and demand reductions in the automotive industry caused by the COVID-19 pandemic, but Tesla defied these expectations. Tesla's second-quarter earnings per share (EPS) also recorded $2.18, far exceeding the market estimate of 3 cents.

According to The Washington Post (WP), Elon Musk, Tesla's CEO, celebrated during the conference call, saying, "During an unprecedented crisis, Tesla's business showed strong resilience, and despite the Fremont factory in California being closed for about a month and a half, we succeeded in posting net profits for four consecutive quarters."

On the day, Tesla's stock price closed at $1,592.33, up 1.53% from the previous day, amid mixed expectations and concerns about the earnings. However, immediately after the earnings announcement, in after-hours trading, the stock price soared 6% to $1,715.20. This is analyzed to be due to increased expectations of additional capital inflows as Tesla achieved four consecutive quarters of profitability and met the conditions for inclusion in the S&P 500 index.

The S&P 500 index is currently three times larger in market size than the Nasdaq, where Tesla is listed, and its inclusion criteria are more stringent. To be included in the S&P 500, a company must be headquartered in the U.S., have four consecutive quarters of profitability, and meet a market capitalization threshold of at least $8.2 billion. Tesla's market cap is $295.1 billion, and it has already met the other conditions. However, it had not been included until now because it had not posted four consecutive quarters of profit.

Tesla is expected to be included during the regular stock rebalancing by the S&P Dow Jones Indices committee managing the S&P 500 in September. Considering Tesla's market cap size, more than $30 billion in funds are expected to flow in through S&P 500-linked funds. Following the earnings surprise announcement, Tesla also revealed plans to establish a new factory on the same day. CEO Musk stated, "We will build a fifth factory in Austin, Texas," adding, "The new factory will be an ecological paradise and will be open to the public." The Texas factory will focus on producing electric vehicles aimed at the U.S. East Coast market in the future.

However, some voices of concern have emerged regarding Tesla's rapid growth. Morgan Stanley, a major U.S. investment bank, pointed out the day before that Tesla's actual business and company size are disproportionately small compared to its market capitalization. Analyst Adam Jonas of Morgan Stanley said in a report, "Tesla is too small for a company with a $300 billion market cap," and analyzed, "Compared to Amazon's revenue when it had a $300 billion market cap in 2015, Tesla's revenue is only about 30%."

Concerns remain about how the impact of COVID-19 will affect Tesla's business going forward. According to U.S. ABC News, after the second-quarter earnings announcement, Tesla sent a letter to investors stating, "It is uncertain whether there will be additional factory shutdowns in the second half of 2020," and conveyed that "it is difficult to predict how global consumer sentiment will develop."

This content was produced with the assistance of AI translation services.