S&P 500 to swallow Tesla in one gulp; shares surge

[SAN FRANCISCO] Tesla shares jumped 4 per cent in extended trade on Monday after S&P Dow Jones Indices (DJI) said it would add one of Wall Street's most valuable companies to the S&P 500 index all at once on Dec 21.

Adding Elon Musk's Tesla to Wall Street's most followed benchmark will force index funds to buy about US$73 billion worth of its shares, S&P Dow Jones Indices said.

The electric car maker's stock has surged over 40 per cent since Nov 16, when it was announced Tesla would join the index.

At that time, S&P Dow Jones Indices said it would consult investors about whether to potentially add Tesla in two tranches a week apart to make the addition easier to handle for index funds.

"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.

With a stock market value around US$550 billion, Tesla will be among the most valuable companies ever added to the index. Tesla will account for just over 1 per cent of the S&P 500.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Up about 600 per cent in 2020, the California-based car maker has become the most valuable auto company in the world, by far, despite production that is a fraction of rivals such as Toyota Motor, Volkswagen and General Motors.

A blockbuster quarterly report in July cleared a major hurdle related to profitability that had prevented Tesla's inclusion in the S&P 500.

About a fifth of Tesla's shares are closely held by Mr Musk, the chief executive, and other insiders. Since the S&P 500 is weighted by the amount of companies' shares actually available on the stock market, Tesla's influence within the benchmark will be slightly diminished, putting it at around seventh place, currently held by Johnson & Johnson.

S&P Dow Jones said it would announce on Dec 11 which company Tesla would replace in the S&P 500.

REUTERS