Tesla joining S&P 500 group of companies

Daniel Fowler
November 17, 2020

An unsold 2021 S70 sedan sits at a Tesla dealership Sunday, Nov. 8, 2020, in Littleton, Colo.

Index funds would need to sell about $51 billion worth of shares in companies already in the index in order to make space for the electric vehicle maker.

When Tesla joins the S&P 500, it will be among the most valuable companies on the benchmark.

The announcement, made Monday afternoon by the S&P Dow Jones Indices, sent shares 13.7% higher in after-market trading.

"This is another major feather in the cap for Tesla bulls joining the S&P 500", said Wedbush Securities analyst Dan Ives, as quoted by CNBC.

S&P Dow Jones Indices said Tesla will be one of the largest companies added to the S&P 500 in the past decade.

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The value of Tesla's shares jumped more than 10% in the after-hours session on Monday in response to the news.

Tesla became eligible to join the S&P 500 after posting its fourth consecutive profit in the second quarter of this year. Based on its market value, the electric auto maker would be one of the top 10 companies in the benchmark index upon entry.

Tesla stocks surged 13 per cent after trading on Monday (US time) on news that it would be included in the prestigious S&P 500 index, meaning it will likely attract increased interest from professional funds managers and investors.

Tesla's inclusion in the widely followed stock market index means investment funds indexed to the S&P 500 will have to sell about $51bn worth of shares of companies already in the S&P 500 and use that money to buy shares of Tesla, so that their portfolios correctly reflect the index, according to S&P Dow Jones Indices.

Because of Tesla's large market capitalization, S&P Dow Jones Indices is considering splitting the addition of the company's stock into two "tranches".

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