Elon Musk’s fortune soars by $20b as Tesla joins exclusive Wall Street club

It’s been an eventful few days for Elon Musk.

The billionaire tested positive for COVID-19, his rocket company launched four astronauts into space and on Monday (US time) his electric carmaker Tesla was named for inclusion in the S&P 500.

The last bit of news added the equivalent of rocket fuel to his fortune. Musk, 49, is poised to become the world’s third-richest person, leapfrogging Mark Zuckerberg, after his net worth swelled by more than $US15 billion ($20.5 billion) in extended trading.

Elon Musk will leapfrog Mark Zuckerberg to become the world's third-richest person.
Elon Musk will leapfrog Mark Zuckerberg to become the world’s third-richest person.

Tesla, whose stock closed at $US408.09, surged about 14 per cent in after-hours trading in New York, lifting Musk’s net worth to $US117.5 billion, according to the Bloomberg Billionaires Index. His wealth has jumped $US90 billion this year, the biggest gain on the ranking of the world’s 500 richest people.


Tesla will enter the S&P 500 on December 21 following months of speculation, and one temporary setback, after the stock failed to make the cut during the index’s quarterly rebalancing in early September. Tesla would be the biggest new entrant in the group’s history.

On Saturday in the US, Musk tweeted that he “most likely” had a moderate case of COVID-19 and has had symptoms of “a minor cold.” Sunday he tweeted he had no symptoms. That same day four astronauts were launched to the International Space Station in a vehicle built by Musk’s Space Exploration Technologies.

The anticipation around Tesla joining the S&P 500 has helped drive a nearly fivefold rally in the stock this year, making the California-based electric vehicle pioneer the biggest company ever to be added to the gauge, at nearly $US390 billion of market value. It will also be one of the index’s most influential constituents with a weighting that falls around those of Berkshire Hathaway, Johnson & Johnson and Procter & Gamble Co.

It’s so big that S&P Dow Jones Indices said it is seeking feedback from the investment community to determine if Tesla should be added all at once or in two separate pieces. The company that Tesla is to replace in the index will be named later, the index provider said.

While entry into the benchmark is a rite of maturity that may dim some of Tesla’s cult stock appeal, membership comes with benefits, including forced purchases by index-tracking investors and mutual funds. The inclusion and the rapid rally in Tesla’s share price over the past few months mean money managers overseeing passive funds will have to sell tens of billions of dollars worth of shares in their existing S&P holdings to make room for Tesla. On the other hand, longtime investors looking to exit their positions may now try to get out, knowing that index funds have to buy.

These crosscurrents may mean more trading volatility, though that is not new for Tesla. Ever since going public in 2010, the company’s popularity with Musk acolytes and legions of day traders has made it one of the more volatile stocks of its size in America. A steadier, more institutional ownership base could help to eventually ease those swings.

Unorthodox style

Tesla has solidified its position as the leading electric carmaker globally, even though competition is slowly heating up. It’s overcome challenges including sometimes-severe production snarls, a massive cash burn rate and concerns about the demand for battery-powered vehicles in an industry dominated by gas-powered cars. In mid September, Tesla reported a fifth consecutive quarterly profit, quieting critics who questioned its ability to make money.

Indeed, all it had taken was Musk hinting at the second-quarter profit – the company’s fourth consecutive profitable quarter – in a letter to employees in late June to trigger a 66 per cent surge in the stock over a span of 17 trading days, since the results checked off the last requirement for S&P 500 inclusion.

The company’s sky-high share price also prompted Tesla to split its stock in a 5-for-1 exchange, a move aimed at making it more accessible to individual investors. The shares started trading on a split-adjusted basis on August 31.

Tesla will instantly become one of the index's most influential constituents.
Tesla will instantly become one of the index’s most influential constituents.Credit:AP

Joining one of the world’s most exclusive clubs is a validation for Musk and his unorthodox management style. His chief lieutenants are little known and rarely made available to the media or investors, and Musk courts controversy like few other corporate captains. He has picked fights with securities analysts, smoked marijuana during an interview and been sued for fraud by securities regulators for tweets claiming he had “funding secured” to take the company private.

He also has complained more than once that Tesla’s stock price is too high. But that hasn’t deterred investors.

Tesla has tapped into that investor goodwill with multiple secondary share offerings over the past decade, raising $US14 billion through February and another $US5 billion in September. That’s helped it fund new vehicle development and rapidly expand manufacturing capacity.

Global aspirations

Musk’s latest mission is to make Tesla more of a global player in markets such as Asia and Europe. The automaker recently opened a plant in Shanghai and is building a factory in Berlin, which Musk visited this week for meetings with local officials. Tesla also has a second US plant under construction near Austin, Texas, which is expected to expand the company’s model range to include a pickup called the Cybertruck.

Musk is intent on cementing first-mover advantage in the market for EVs as the entire auto industry shifts to embrace electric powertrains, and his company’s valuation on Nov. 13 was larger than Volkswagen, Toyota and General Motors combined.

While Tesla is being rewarded by investors for dominating the global electric-car market, demand is still a small fraction of new vehicle sales – amounting to less than 3 per cent of US sales last year. That presents plenty of growth opportunity, but illustrates the challenge of making battery-powered cars more of a mainstream choice.

Still, the company’s recent success and its burgeoning valuation has also forced a spotlight on the entire electric vehicle space, sparking a surge in shares of several new entrants, some of whom still have a ways to go before production begins. Shares of China’s Nio rose 44 per cent in October, and the company currently commands a market value that is bigger than GM.


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Source: Thanks smh.com