Tesla it will be added to the S&P 500, a milestone that will expand its investor base and put the electric automaker in the same firm as heavyweights like Apple, Berkshire Hathaway and Microsoft.
The announcement, made Monday afternoon by the S&P Dow Jones indices, sent shares up 13.7% in after-market trading. Tesla will officially join the benchmark index before trading on December 21, the S&P Dow Jones Index said in a statement.
When Tesla joins the S&P 500, it will be among the most valuable companies in the benchmark. Its weighting will be so influential that the S&P DJI is considering whether to add the stock to the free-float adjusted market cap weight all at once or in two tranches.
"Tesla will represent one of the biggest additions to the S&P 500 in the past decade, and as a result will generate one of the largest funding exchanges in the history of the S&P 500," S&P DJI said in a statement. "However, Tesla itself is very liquid and the addition of the stock to the next quarterly rebalancing in December coincides with the expiration of stock options, stock futures, stock index options and stock index futures, which can help to facilitate the trade in loans ".
Joining the S&P 500 has its benefits, as investors who have index-replicated funds will be forced to buy shares. With stock prices already exploding, that means investors will have to sell more stock to make room for Tesla. Existing investors may, in turn, want to take advantage of this demand and sell. The result: the traditionally volatile stock could become a little more volatile.
The inclusion in the benchmark follows Tesla's decision in August to divide its shares 5 by 1.
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