Nov 16, 2020 - Economy & Business

Tesla to join S&P 500 as its biggest new member ever

Tesla car and logo

People look at electric vehicles at a Tesla store in Shanghai, China. Photo: Yan Daming/VCG via Getty Images

Tesla will join the S&P 500, the index's committee said on Monday.

Why it matters: After years of ineligibility, one of the most valuable U.S. companies by market cap (and the most valuable automaker in the world) is joining the main benchmark of the stock market as its biggest new member ever.

  • The move opens Tesla up to a massive investor base: roughly $11 trillion worth of investment funds that track the index.
  • Tesla would be the 10th biggest S&P 500 component, ahead of Johnson & Johnson.

Catch up quick: The company met the final requirement for eligibility — four consecutive quarters of profitability — when it reported its Q2 results in July. But the company was passed over when S&P Dow Jones Indices switched up the index's components in September.

  • Wall Street analysts speculated that the reason was because of Tesla's dependency on the sale of regulatory credits to other automakers — without which, it wouldn't be profitable on a quarterly basis.
  • Shares of Tesla, which ran up earlier this year on the expectation it would be added to the index, rose roughly 9% in after-hours trading.

Details: The move is effective on Dec. 21.

  • Because Tesla is such a massive addition to the index, the committee is still trying to figure out whether the company should be added all at once or in two separate tranches.
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