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Electric Automaker Tesla Will Join the Elite S&P 500 Index on Dec 21

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【Summary】Electric automaker Tesla will be included in the S&P 500 Index beginning on Monday, Dec 21. With its inclusion, Tesla can now expect more exposure across financial markets resulting in a stable source of new investments. A listing in the S&P 500 is considered an elite status for companies and can open the door to billions in new funding.

Eric Walz    Nov 16, 2020 4:55 PM PT
Electric Automaker Tesla Will Join the Elite S&P 500 Index on Dec 21

Since becoming a publicly traded company in June 2010, electric automaker Tesla has never reported four consecutive profitable quarters, which is a necessary metric for inclusion in the elite S&P 500 Index. But after the company's stock soared this year and its now posted five consecutive profitable quarters, Tesla has made it to the big leagues.

Tesla will be included in the S&P 500 beginning on Monday, Dec 21. With its inclusion, Tesla can now expect more exposure across financial markets resulting in a stable source of new investments. A listing in the S&P 500 is considered an elite status for companies and can open the door to billions in new funding for Tesla, as investors and fund managers trust the stability of companies included in the index. 

Tesla qualified for the index for the first time back in July, but was snubbed in September by the committee at investment company Standard & Poor's, which selects the companies for the S&P 500. 

The S&P 500 represents the biggest corporations in the U.S. The index includes 500 large-cap publicly traded companies whose stocks trade on either the New York Stock Exchange (NYSE) or NASDAQ.

The companies in the S&P 500 are considered to be stable with long profitable histories or highly innovative business models, making them popular stocks for index funds and corporate managed 401k's that millions of Americans contribute to with each paycheck. 

The S&P 500 includes such companies as Amazon, Apple, Alphabet Inc., Microsoft, Coca-Cola, ExxonMobil and Facebook.

The committee meets each quarter to rebalance the index, but companies can be added or removed from the S&P at any time. However the process itself is tightly guarded as inclusion or removal from the index has the potential to move markets and can significantly affect a company's share price. Even companies that are set to be added receive no advance warning, which was the case with Tesla on Monday.

Tesla's market cap is currently hovering around $386 billion, so Tesla will be the most valuable company in the S&P 500 Index, according to analysis from equity research firm Baird. 

The news of Tesla's S&P 500 listing pushed the company's stock up more than 10% on Monday as money managers overseeing funds that invest in S&P 500 companies now need to buy Tesla shares for their portfolios. 

Tesla's stock has skyrocketed to record highs this year, despite the global pandemic. Tesla's rise was due to strong sales of its electric vehicles in China, Europe and the U.S. Tesla recently reported third-quarter revenue of $8.77 billion.

The California company also reported that it delivered 139,300 electric vehicles during the third quarter, its highest number ever. However some analysts believe that Tesla's stock rally this year was fueled in part by Tesla's expected inclusion in the S&P 500.

Tesla's inclusion in the S&P 500 however means that one unlucky company is being removed. The company Tesla is replacing will be announced at a later date.

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