After S&P Dow Jones Indices said it would add US-based electric car manufacturer Tesla to the S&P 500 index all at once on December 21, shares of the company jumped 4 percent in extended trade.
S&P 500 is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
Adding Elon Musk’s Tesla to the most followed Wall Street benchmark would push index funds to purchase its shares worth around $73 billion, S&P Dow Jones Indices said.
Since November 16, when it was announced Tesla will join the index, the stock of the electric car manufacturer has increased over 40 percent. At that time, S&P Dow Jones Indices said it would consult investors on whether to potentially add Tesla in two separate tranches a week to make it easier for index funds to handle the addition.
“In its decision, S&P DJI considered the wide range of responses it received, as well as, among other factors, the expected liquidity of Tesla and the market’s ability to accommodate significant trading volumes on this date,” S&P Dow Jones Indices said in a media statement.
Tesla will be among the most valuable firms ever added to the index, with a stock market valuation of about $550 billion. Tesla will account for just over 1 percent of the S&P 500.
The revolutionary automaker has been by far the most valuable automotive firm in the world, up around 600 percent in 2020, despite production that is a fraction of rivals such as Toyota Motor, Volkswagen and General Motors.
In July, a blockbuster quarterly report cleared a significant profitability barrier that had stopped Tesla from being included in the S&P 500.
Musk, the chief executive, and other insiders closely control around a fifth of Tesla’s shares. Since the S&P 500 is weighted by the number of shares of companies actually available on the stock market, the influence of Tesla within the index would be slightly decreased, placing it in around seventh spot, currently held by American medical, pharmaceutical and consumer goods brand Johnson & Johnson.
S&P Dow Jones said it would announce on December 11 which company Tesla would replace in the S&P 500.