Trading Nation

Tesla is joining the S&P 500. What Cramer and five others see ahead for the electric-auto maker

VIDEO5:4305:43
Tesla is finally joining the S&P 500 — Here's what six experts say they're watching

Tesla is officially on track to join the S&P 500.

Shares of the electric-auto maker jumped more than 9% in Tuesday trading after S&P Dow Jones Indices announced the company would be added to the major market index, a long-awaited move and a triumph for Tesla bulls.

Some market watchers cheered the validation from a top index provider, while others were laser-focused on how the move could shake up the S&P.

Here's what six of them, including CNBC's Jim Cramer, said of the move:

Dan Ives, managing director at Wedbush Securities, said the electric-vehicle maker's path to profitability just received a vote of confidence:

"I don't view this as a traditional auto company. It's a disruptive technology company on the EV front. And I think that's why if you just look at the numbers, you would not get to a valuation where it is today. ... I think the one thing on this S&P 500 that's important [is] this speaks to profitability. That's why, in our opinion, they got the snub back in early September. So, this is the validation, the feather in the cap for the bulls. But no doubt, right now, [Elon Musk] has the gold touch, of course not just on Tesla but SpaceX."

Joanne Lipman, a distinguished journalism fellow at the Institute for Advanced Study and a CNBC contributor, said Tesla's inclusion spoke volumes to how the market is setting up for the future:

"Just to pull the camera back for a moment, I actually think this is a bigger story than Elon Musk and bigger than Tesla in that what we're really looking at is this confirmation, this declaration, recognition that electric vehicles are our future and that they're finally going mainstream. And you see it with every other automaker that is rushing in to try and compete with Tesla. ... So much of this has to do with the charisma of Elon Musk. ... People are trying to get the next Henry Ford. I actually think a lot about Steve Jobs. I've been around long enough to remember when he left Apple and then came back and a lot of people were scratching their heads about Apple, but the customers who bought those products were just rabid. It was a cult. They loved the charisma of the guy. But I do think that is also the big unknown with Tesla because on the one hand, you've got this charismatic guy with this massive following, but on the other hand, you have to be able to separate the company from the founder and the kind of sometimes crazy things he says. I mean, he just said a couple of weeks ago that they're going to be building 20 million cars a year within a decade. Will they? I mean, that's, like, twice as big, almost, as their largest competitor right now. And ... in March he said that Covid would be down to zero cases in April and, of course, he was just diagnosed with Covid over the weekend. So, that would be kind of the question, of separating the company from the hype and the founder, and how does it do absent that founder."

Cramer, host of CNBC's "Mad Money," said wrapping Tesla into the index effectively might be a challenge for S&P Dow Jones:

"I think they're baffled. I really don't think they know how to handle this. What do you do? You can't have the S&P 500 only have 497 companies, although I have heard people on air sometimes say there are 500 companies in the S&P. Shocker. I don't know what they would do. I mean ... they can't knock out the smalls. It doesn't do anything. When they balance this ... they almost seem to have to make everything smaller."

Aswath Damodaran, a professor of finance at New York University's Stern School of Business sometimes known as the "Dean of Valuation," shared his take on how Tesla's massive market cap would impact the index:

"You can't evade reality, which is when you've got a $400 billion company out there and you call yourself the S&P 500, how long can you hide from not having the company in your index? It was only a matter of time. So, I'm glad it's in there and I think the inclusion in the index by itself is not going to change the game with Tesla. Tesla's always had a story of its own, a life of its own, traders who basically trade based on its future, but I think it is ... about time. I'm glad it's in the index. ... I think that if we think about EV being the market of the future, it's not just Tesla that's going to benefit, to the extent that the other car companies are also making these EVs. You're going to see the market change. What the market seems to be forecasting is in that new market that's out there, Tesla will be the leader, not GM or Ford or Volkswagen. And that's a pretty solid bet at the moment. Whether it pays off in terms of a $400 billion market cap is the big question."

Tiffany McGhee, CEO, partner and co-chief investment officer of institutional client services at Momentum Advisors, saw catalysts on the horizon for Tesla:

"I think its addition to the S&P 500 is very interesting, and I think about what that means for S&P 500 index funds. They're going to have to sell positions to mimic the index. They're going to have to buy Tesla. That whole situation is interesting to me. ... When Tesla makes these really cool announcements, the stock tends to go up. So, I am a long-term investor, but it doesn't mean that I can't get in on little cool things like this."

Ritholtz Wealth Management CEO and co-founder Josh Brown, a regular on CNBC's "Halftime Report," was indifferent on the move as it related to the stock:

"If you're managing money in an index strategy, it's not like the old days where the announcement happens and you have to buy that day. They have time to get into the trade, and they knew that they would have to at some point. So, I wouldn't be surprised if there were some anticipatory trades dating back a couple of months ago when we first thought it was obvious they would have to add the company. So, they punted by a couple of months, the index committee, but ultimately I think everyone knew it was just a matter of time. So, I don't really look at that as a catalyst to want to buy it or sell it."

Disclaimer