Like it or hate it, Tesla (NASDAQ: TSLA) has undoubtedly been one of the greatest success stories of the past decades. Since the public went public in 2010, Tesla’s stock market has gone up, and the electric car manufacturer has fired industry naysayers by increasing production and becoming the most valuable motorist on earth.
Along with its rise in the share price, Tesla has demonstrated its ability to perform financially and fundamentally. By becoming consistently profitable, Tesla is likely to participate in the S&P 500 index (SNPINDEX: ^ SPX) coming soon. Yet by making a very unexpected move on August 11, CEO Elon Musk brought out his usual flair for the dramatic – and made his case for why Tesla should participate in the Dow Jones industrial average (DJINDICES: ^ DJI).
Continue over the last speed bull in Tesla’s path to the Dow
Until Tuesday, there was one seemingly insurmountable obstacle that Tesla would have made impossible in the Dow Jones Industrials. The share price of nearly $ 1400 per share as of August 11 would have made it an impractical choice to participate in the price-weighted average, as the impact on the entire Dow Jones Industrials would have been unfair. Even now, the fact that Call has a nearly 11% weight in the Dow is somewhat controversial, and that’s with Apple’s share price of just $ 450. The idea of representing Tesla 30% was a complete nonstarter.
Image Source: Getty Images.
Yet Musk surprises almost everyone by doing something that Tesla has never done before: sharing their supplies. It announced a split for 5 for 1 on record holders on August 21, with shares starting a week and a half later on August 31 with a split-adjusted basis.
To be clear, the Tesla board did not explicitly say it was trying to involve the Dow. In its press release, the company mentioned the desire to “make shareholder more accessible to employees and investors.” Yet with the advent of stock fractions, that is an increasingly difficult argument to make. And there’s no doubt that becoming one of the Dow 30 shares would be a big ego boost for Musk.
One could also see the choice of a 5-for-1 split as a testament to Musk’s vanity. Given the boost to the stock price Wednesday morning to nearly $ 1500 per share, the 5-for-1 ratio would put Tesla shares around $ 300 after the split takes effect. That would make Tesla the third-most influential stock in the Dow behind only Apple and UnitedHealth Group and give the electric car manufacturer about a 7% weight on average.
Why Tesla in the Dow is not a crazy statement
With its issue of stock prices solved, the case for Tesla at the Dow has been forced:
- The Dow has been without a car business for more than a decade, after spending most of its history with at least one.
- Tesla’s market capitalization of more than $ 250 billion puts it in the top third of current Dow components.
- Its exposure to solar energy would also add to the breadth of the Dow, complementing the two major oil companies currently below its ranks. The other adjacent industrial applications would increase the industrial origin of the average.
The best argument against Tesla at the Dow is that it is a relatively new company. Most of the current members of the Dow have long pedigrees that date back decades. However, the move would not be unusual. Microsoft had only traded publicly for 13 years before being a member of the average, and Fisa joined the Dow in 2013, just five years after its 2008 IPO.
It’s Dow Jones’ movement
Other than that, the great uncertainty about Tesla at the Dow is largely due to the fact that there are no obvious candidates to step out to make room for the automaker. Although some companies have low stock prices that give them unusual impact over the entire Dow, their fundamentals are still solid.
However, the ball is now in the court of Dow manager S&P Dow Jones Indices to decide what will happen next. If a vacancy arises in the Dow Jones Industrials, investors should expect Tesla to get a close look, thanks to Elon Musk’s decision to split the part.
