Matt Bacon Nov 20, 2020
Tesla marks yet another milestone this week as it joins the S&P 500. The company will officially join the index on December 21, 2020. The stock is up about 478% year to date, though earnings growth is paltry by comparison. Inclusion will drive the price even higher as assets tied to the S&P 500 will be forced to buy newcomer Tesla.
Buying new entrants and selling old ones is typically a mundane process. A handful of companies have bad years and roll out of the top 500 while a few new companies are added. This is usually small potatoes since the S&P 500 is a market cap weighted index. The biggest companies are given a heavier weighting in the index than their smaller peers. Kicking out the bottom few stragglers doesn’t do much to move markets or the index.
But Tesla isn’t small. Its worth about ~$470bn. It will join the index as one of its ten largest companies. With $4.6trn tied to the S&P 500, a boatload of Tesla buying will need to happen. Tesla shares surged close to 13% on the announcement Tuesday with more gains expected in the weeks to come.
We’re still in awe of Tesla’s meteoric rise. We shared our doubts about the carmaker earlier this year, which you can find here and here. But inclusion in the S&P 500 is a big deal. The nascent carmaker’s fast-rising status as a pillar of the automotive industry is cemented with this announcement. The valuation is stretched but the manufacturer and its adoring fans are here for the long-term.