Why Tesla (TSLA) Skyrocketed During the Pandemic

Tesla Elon Musk

Can the electric car maker sustain its momentum?

In January 2020, Tesla, Inc. (TSLA) was valued at $117 billion by the stock market. By the end of the year, that figure had skyrocketed to $658.39 billion. Subsequently, Tesla’s stock traversed the distance to a $1 trillion market cap in less than a year, reaching that milestone on Oct. 25, 2021.

The stratospheric rise in Tesla’s shares within a short span of time has confounded investors. It also raises an important question: can the factors that propelled Tesla to a trillion-dollar valuation during the pandemic help sustain its momentum afterwards?



KEY TAKEAWAYS

  • The increase in Tesla’s stock price and market cap has created a financial complex of investment products that include or track the electric car maker’s stock.
  • Average trading volume in Tesla options exceeds that in S&P 500 options.
  • The financial complex has helped Tesla finance the next round of its evolution as a major car manufacturer.

 

The Tesla Financial Complex 

While retail investors (and CEO Elon Musk’s tweets) have played a major role in Tesla’s ascent, at the heart of the electric car maker’s meteoric rise lies what the Financial Times terms a “Tesla financial complex.”1 Included in this complex are an assortment of investment products—options, equity-linked funds, climate tech-focused investment vehicles—and they exert a massive influence in the equity and derivatives markets.

The relationship between the stock and members of this complex is symbiotic. As Tesla’s stature grows in the markets, funds and derivatives with exposure to the stock generate outsized returns, leading fresh investors to pour money into it and further increase its influence. For example, in July 2018, the Tesla was a holding in 106 exchange traded funds (ETFs). By December 2021, it became a holding in 244 ETFs.23

Tesla’s entry into the S&P 500 in December 2020 has further exposed funds tracking the index to the company’s stock, and they have reaped the rewards of its price run-up. The company joined the S&P 500 with a weighting of 1.6%. By the beginning of November 2021, it was weighted at 2.5% of the index and had contributed almost a quarter of the index’s returns.4 A similar story played out in the Russell 1000, where Tesla accounted for 4% of the overall weighting in November.



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