Tesla inventory jumps on the automaker’s enlargement to the S&P 500

Elon Musk, Tesla boss, runs to a Tesla at the construction site of the Tesla Gigafactory. In Grünheide near Berlin, a maximum of 500,000 vehicles per year should roll off the assembly line from July 2021.

Julian Stahle | Image Alliance | Getty Images

Tesla is finally joining the S&P 500.

S&P Dow Jones Indices announced Monday that the automaker will be added to the benchmark index ahead of Monday, December 21st trading. Based on Monday’s closing prices, Tesla would be one of the 10 most valuable companies in the index.

Tesla shares rose more than 13% in extended trading In the news, money managers with funds tracking the S&P 500 are forced to buy the stock for their portfolios.

The company, led by CEO Elon Musk, has long been valuable enough to be included in the S&P 500 – market cap is at least $ 8.2 billion – but there are other factors that have deterred Tesla . The composition of the S & P 500 is determined by the so-called “Index Committee” at S & P Dow Jones Indices, which analyzes both quantitative and qualitative factors.

Tesla was rejected in September after meeting the criteria for inclusion in the index, but was not initially selected by the committee. Corporations are required to report earnings for four quarters in a row, as determined by United States generally accepted accounting principles (GAAP).

Tesla recently reported its fifth consecutive quarter of earnings on sales of $ 8.77 billion in the third quarter. The company also announced it had delivered 139,300 vehicles in the third quarter, a new record.

The committee meets quarterly to rebalance the index. However, companies can be added or removed from the S&P at any time. Given the potentially market-moving nature of additions and deletions from the index, the process is closely monitored. Even companies that are about to be added receive no advance warning.

Elon Musk, CEO of Tesla, gesticulates when he visits the construction site of the future US electric car giant Tesla in Gruenheide near Berlin on September 3, 2020.

Odd Andersen | AFP | Getty Images

Adding Tesla is no easy feat after the stock’s record run pushed the company’s market cap to over $ 380 billion. According to an analysis by the stock research firm Baird, this makes it the largest company ever to join the S&P. The stock, which split 5 to 1 in August, more than quadrupled in 2020.

There are currently over $ 11.2 trillion in net worth compared to the S&P 500, with around $ 4.6 trillion in indexed funds according to the S&P Dow Jones Indices.

“Due to the size of the addition, S&P is seeking feedback from Dow Jones Indices through a consultation with the mutual fund to determine whether to add Tesla at the time of rebalancing or in two separate tranches ending at the time of rebalancing,” Said S&P in a statement.

The addition marks a historic milestone for Musk and his electric car company, which has seen its fair share of ups and downs.

“This is another important factor for Tesla bulls joining the S&P 500,” said Dan Ives, an analyst at research firm Wedbush Securities, which has a neutral rating on the stock. “It speaks for the continuing profit development that Tesla is finally getting into this elusive club after a lot of noise on the street.”

CNBC’s Jennifer Elias contributed to this story.

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