Tesla S&P 500 Inclusion: What it Means for Investors

Tesla is scheduled for inclusion in the S&P 500, a significant achievement that will broaden its pool of investors and place the electric vehicle manufacturer alongside established corporations such as Apple, Berkshire Hathaway, and Microsoft.

The announcement, released Monday afternoon by S&P Dow Jones Indices, resulted in a 13.7% increase in the company’s share price during after-hours trading. According to a statement from S&P Dow Jones Indices, Tesla will officially become part of the benchmark index before the start of trading on December 21.

Upon its addition to the S&P 500, Tesla will rank among the index’s highest-valued companies. The company’s substantial market capitalization will be so impactful that S&P DJI is considering whether to incorporate the stock’s full float-adjusted market capitalization weight immediately or in two phases.

“Tesla’s addition to the S&P 500 is projected to be one of the largest weight increases to the index over the past ten years, and will therefore necessitate one of the largest funding trades in the history of the S&P 500,” stated S&P DJI. “However, Tesla demonstrates strong liquidity, and the timing of the stock’s inclusion during the December quarterly rebalancing aligns with the expiration of various derivative contracts – including stock options, stock futures, stock-index options, and stock-index futures – which should assist in managing the funding trade.”

Being added to the S&P 500 offers several advantages, as investment funds that track the index will be required to purchase Tesla shares. Given the already rising share price, this will likely prompt investors to sell other holdings to accommodate the new investment. Current shareholders may also choose to capitalize on this increased demand by selling their shares. As a result, the stock, which has historically experienced price swings, could see even greater volatility.

This inclusion in the benchmark index follows Tesla’s 5-for-1 stock split decision made in August.