Tesla stock jumps on carmaker’s addition to the S&P 500

Tech

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

Julian Stahle | picture alliance | Getty Images

Tesla is finally joining the S&P 500.

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

Tesla shares spiked more than 10% on the news, as money managers with funds that track the S&P 500 will need to buy the stock for their portfolios.

The company, led by CEO Elon Musk, has long been plenty valuable for inclusion in the S&P 500 — the market cap minimum is $8.2 billion — but there are other factors that have kept Tesla out. The make-up of the S&P 500 is determined by what’s known as the “Index Committee” at S&P Dow Jones Indices, which analyzes quantitative as well as qualitative factors.

Tesla was snubbed in September after it met criteria to be included in the index but was not initially picked by the committee. Companies must report four straight quarters of profit as determined by U.S. generally accepted accounting principles (GAAP).

Tesla recently reported its fifth consecutive quarter of profit on third-quarter revenue of $8.77 billion. The company also reported that it delivered 139,300 vehicles during the third quarter, a new record for Tesla. 

The committee meets on a quarterly basis to rebalance the index, though 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 tightly guarded. Even companies that are set to be added receive no advance warning.

Tesla CEO Elon Musk gestures as he arrives to visit the construction site of the future US electric car giant Tesla, on September 03, 2020 in Gruenheide near Berlin.

Odd Andersen | AFP | Getty Images

Adding Tesla is no easy feat after the stock’s record run pushed the company’s market cap above $380 billion, making it the largest company ever to be added to the S&P, according to analysis from equity research firm Baird.

According to S&P Dow Jones Indices, there’s over $11.2 trillion in assets benchmarked to the S&P 500, with roughly $4.6 trillion of the total in indexed funds.

“Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date,” S&P said.

The company Tesla is replacing in the index will be announced at a later date.

CNBC’s Jennifer Elias contributed to this story.

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