There's One Hurdle Between Tesla (TSLA) and the S&P 500

Tesla (NASDAQ: TSLA) has been having an amazing run of things lately. If the stock were colored orange and had a musical horn you could swear it made a guest appearance or two on “The Dukes of Hazzard.” In fact, new reports suggest that the electric car maker could be poised to join the S&P 500 by the end of this year. There's just one more obstacle for Tesla to beat to hit this goal: profitability.

Start Your Tesla Engines for the S&P 500

How exactly does a stock get into the S&P 500? As it turns out, there are several criteria that need to be met. A company looking to join the S&P 500 needs to have a headquarters in the United States, a total market cap of at least $6.1 billion, the stock price must be at least $1 per share, the company needs to file a 10-K annual report every year, at least half of its stock has to be available for purchase on one of several exchanges, and at least half of both its revenues and its fixed assets must be found in the United States.

Tesla actually meets or exceeds each of those requirements. There's one point, however, that's still outstanding. A company that wants to join the S&P 500 needs to have four quarters of positive earnings, and those quarters need to happen consecutively.

Tesla Objects in the S&P 500 Mirror Are Closer Than They Appear

That last point, as it turns out, is closer to realization than some expected. Just Wednesday, Tesla posted positive earnings for the preceding quarter thanks to a slightly upward goose in revenue. That's the second time Tesla has returned in such fashion, after posting gains with the October earnings report. Now, Tesla need only post two-quarters of such growth to make it eligible, which means before 2020 closes, Tesla could be a part of one of the US' great economic bellwethers.

That may prove easier said than done, however. Analysts are already expecting a small loss per share with the next earnings release in a few months. Naturally, these being forecasts, they could end up as wrong as quickly as they could right, but that's a bit of a drag on Tesla's overall outlook.

A Less Than Stellar Track Record

So all Tesla needs to step into the S&P 500 is two profitable quarters. The question on many lips, therefore, is can the job be done? We know from past experience—which doesn't always predict future performance, but still—that Tesla has had some trouble keeping profitability going for any length of time. Remember back in 2018, when Tesla put up two repeating profitable quarters as well before losing ground. It lost that chance as well.

There's also a lot less mystique around Tesla than there once was. Sure, Tesla has made some impressive gains since 2018, but it's also a stock that a lot of people are already watching. This isn't some out-of-nowhere story here; it's already got investors and analysts watching it closely. That's going to make continuous profitability a little tougher to pull off.

Also consider some of the events going on on the wider stage. Tesla's biggest chance at expansion is the Chinese market, but look what's going on in the Chinese market right now. Yes, that little thing called “coronavirus,” which is starting to make China look like a Stephen King novel, and not one involving a clown, either. Selling electric cars into an environment that might be on the verge of a financial downturn as people can't show up for work at closed factories could be a challenge too great for Tesla to overcome.

Yet we can't forget the value of Tesla's side businesses, like its work to improve batteries. The Tesla Powerwall already represents one of the greatest advances in home backup power, and with a new drive toward backup power in California after all the power outages, it could open up a new market Tesla could certainly use.

Never Count Tesla Out

However, there's one important point to consider. Tesla is currently, at last report, the most shorted stock around. There are about $15 billion in bets against it. Yet it's also the stock that's done a lot of damage to short sellers. Back in October, when that first profitable forecast came out, it cost short sellers about $1.5 billion. With this latest win, Tesla smacked its short-sellers for another $1.5 billion in paper losses, and some reports say this short squeeze will only continue.

So what will it be? Will Tesla race ahead into a bright new future with the S&P 500? Or will it spin out in the midfield like it did last time? Only time will tell, but there are factors working in each direction that will make this one great race to watch.