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Outsider joins the establishment: S&P 500 index welcomes Tesla

S&P Dow Jones Indices has announced that Tesla will be added to the benchmark S&P 500 index. “TSLA will be added to the S&P 500 effective prior to the open of trading on Monday, December 21, to coincide with the December quarterly rebalancing effective date,” the financial institution drily proclaimed.

The California carmaker’s market cap long ago passed the threshold for inclusion in the S&P 500 (the current minimum is $8.2 billion). Candidates for inclusion must also be profitable for four consecutive quarters. Tesla satisfied this requirement in September, when the inscrutable S&P Dow Jones Index Committee last met, but, for unknown reasons, Tesla was passed over.

Now Tesla, which recently reported its fifth consecutive quarter of profit, as well as a record quarterly delivery figure of 139,300 vehicles, will join the elite club.

Based on recent stock prices, Tesla will be one of the 10 most valuable companies in the index. In fact, according to research firm Baird (via CNBC), its current market cap of over $380 billion will make it the largest company ever to be added.

Membership in the prestigious index brings more than just bragging rights. The S&P 500 is designed to be a representation of the overall US stock market. Many investment funds hold a portfolio made up of the S&P 500 stocks, so any stock that is a member enjoys a certain amount of built-in demand. There is currently over $11.2 trillion in assets benchmarked to the S&P 500. Around $4.6 trillion of that total is held in indexed funds, which simply mirror the membership of the index.

The number of companies in the index is of course fixed at 500, so that means Tesla will be bumping some other firm out of the club. The identity of that unfortunate will be announced at a later date.

Sources: CNBC, Electrek

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