Tesla’s (NASDAQ:TSLA) stock price was sharply higher in pre-market trading Tuesday after it was announced that the electric vehicle maker is joining the S&P 500 stock index.
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 10 most valuable companies in the S&P 500 index.
Tesla shares popped more than 10% 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 Chief Executive Officer 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, which analyzes quantitative as well as qualitative factors.
Tesla was snubbed for inclusion in the index in September by the committee. 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 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 the company.
The committee meets on a quarterly basis to rebalance the index, though 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 that are set to be added receive no advance warning.
Tesla stock’s record run this year pushed the company’s market capitalization above $380 billion, making 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.
Tech Insider
