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18 Nov 2020
3 min read

Tesla Stock to Be Added to the S&P 500

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Written by OspreyFX News Team

Tesla Stock to Be Added to the S&P 500

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Key Takeaways:

  • Growth characterizes the automaker’s year
  • A greener future may be ahead for the US

Tesla’s highly volatile year continues to produce new and exciting developments for the company. The S&P Dow Jones Indices announced earlier this week the addition of Tesla to the S&P 500 benchmark index. The company will officially start trading as part of the index on Dec 21. The initial reaction in terms of stock was a sharp spike to the upside that took the price higher by over 10% to briefly trade at $460. It has now subsided slightly with a price level of $445 in the pre-market hours on Wednesday.

Tesla Joins S&P 500

Despite being rejected twice, the company led by Elon Musk was finally granted permission to join the index. Tesla, Inc. will be the biggest company by market cap to join the S&P 500 index since 2010 when Warren Buffett’s Berkshire Hathaway joined with a value of $189 billion. In comparison, Tesla today has a valuation that is close to $420 billion. This places it in 9th place on the index by today’s standards.

The rebalancing of the index for September added Catalent, Inc., Etsy, Inc., and Teradyne, Inc. while passing over Tesla. Going into December, the S&P Dow Jones Indices stated that the company that Tesla will be replacing will be disclosed at a later stage.

Growth for the Electric Vehicle Giant in 2020

In 2020, the electric vehicle and battery giant has grown over four times since January. This represented a hindrance for short-sellers as Tesla was considered to be one of the most shorted companies in the market. Tesla has by now gained popularity as an asset, which will doubtlessly increase further with its addition to the S&P 500.

The automaker has produced five consecutive profitable quarters and the incorporation into the index was already widely anticipated. So, the index addition comes at a time when the company has stalled in growth with a trading price of circa $420 since early September.

Index inclusion bodes well for the company and the investors that support it. Once included, the S&P 500 index funds will be buying millions of Tesla shares. Given the large size of the carmaker, S&P is planning to add it in tranches.

 

A Positive Outlook for a Greener Future

The eight-person index committee introduced a novel approach for the Tesla addition process. The committee collected industry feedback by presenting a questionnaire to properly evaluate the process. The main question in the survey being how should TSLA be added to the S&P 500, with possible answers being A) All at once, B) In tranches 25%-75%, C) In tranches 33%-67%, and D) In tranches 50%-50%.

Adding Tesla to the blue-chip S&P 500 index could be interpreted as a sign that the United States is warming up to a greener future dominated by electric vehicles. Tesla’s pre-market trading activity points to a flat to a slightly negative opening in Wednesday’s US trading session.

Nevertheless, across the Atlantic, the UK’s Prime Minister Boris Johnson announced his green energy plan, which includes a ban on new petrol and diesel cars in the UK from 2030. Hybrid cars will be allowed. Moreover, PM Johnson has set a budget of GBP 1.3b to be invested in electric vehicle charging points.

 

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