Tesla is finally being added to the S&P 500 stock index.
Tesla’s stock price was up as much as 10% on Tuesday after it was announced that the electric vehicle maker is joining the S&P 500. S&P Dow Jones Indices announced Monday after markets closed that Tesla will be added to the benchmark index prior to the start of trading on December 21. Based on Monday’s closing share price, Tesla would be one of the ten most valuable companies in the S&P 500 index.
Tesla shares popped on the news, as money managers with funds that track the S&P 500 will now need to buy the stock for their portfolios.
Tesla, led by CEO Elon Musk, has been valuable enough for inclusion in the S&P 500 for a long time. The market capitalization minimum needed for inclusion is $8.2 billion. However, there are other factors that have kept Tesla out until now. Inclusion in the S&P 500 is determined by what’s known as the “Index Committee” at S&P Dow Jones Indices. That committee analyzes quantitative as well as qualitative factors.
Quarterly Success Matters
Tesla was previously snubbed for inclusion in the index in September. Companies must report four straight quarters of profit, as determined by U.S. generally accepted accounting principles (GAAP) to be listed in the S&P 500.
Tesla recently reported its fifth consecutive quarter of profit, with third-quarter revenue of $8.77 billion. The company also reported that it delivered 139,300 vehicles during the third quarter, a new company record.
The committee meets on a quarterly basis to rebalance the index. However, companies can be added or removed from the S&P 500 at any time. Given the potentially market-moving nature of additions and deletions from the index, the process is closely guarded. Even companies about to be added rarely receive an advance warning.
Tesla stock’s run this year pushed the company’s market capitalization above $380 billion. That makes it the largest company ever to be added to the S&P 500. The stock, which split five-for-one in August, has more than quadrupled in value so far in 2020.
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