Tesla’s “Berkshire Hathaway Moment”!?

Tesla Inc. (NASDAQ: TSLA) is having a great year.

Well, maybe “great” is an understatement…

As of this writing, shares are up 376% since January. Just a few days ago, Elon Musk’s little electric car company overtook Walmart as the ninth-largest publicly traded American company.

Now all eyes are on a potential slot in the S&P 500.

That’s right – Tesla could finally become part of the big index that most folks think of as “the market.”

Only it’s a bizarre situation.

It’s pretty much unprecedented for a company that’s already so massive to get added to the S&P. Part of the reason for that is Tesla’s massive rally this year – it’s gone from a pretty tiny potential piece of the index at the start of the year to the 11th-largest holding if it were added today.

(Because of some technicalities in the way the S&P 500 is calculated, Tesla has the ninth-largest market cap but it would be the 11th-largest S&P component if it joined here.)

Have a look at Tesla’s performance versus other S&P components so far this year. It literally stands alone:

Here’s why it’s a big deal: if Tesla does get added to the S&P 500, the $11.2 trillion in funds that use the index as a benchmark will need to get exposure to Tesla’s stock.

If that happens, you could call it a “Berkshire Hathaway moment” for Tesla.

That’s because Warren Buffett’s Berkshire Hathaway was the last stock to experience a similar late-stage addition to the S&P – more than 10 years ago.

When boring old Berkshire hit the S&P, it outperformed the rest of the market by 18% in the next month and a half.

A decade later, with much more money behind the S&P 500, Tesla’s reaction could be even bigger.

We’ll let you know if Tesla gets added to the big index. One thing’s for sure: The rest of 2020 is sure to be a wild ride for Tesla investors.

Sincerely,

Jonas Elmerraji, CMT