The host of the famous podcast Tesla Daily, Rob Maurer, recently explained why Tesla might be included in the S&P 500 index. He delved into how Tesla could qualify for the index and the impact it could have on the company’s stock, as well as how electric car manufacturers can be included in the S&P 500 index.
Firstly, the S&P 500 index requires companies to be profitable for four consecutive quarters. Tesla’s Q2 2020 report showed that its delivery and production data exceeded expectations, making market expectations for Tesla’s inclusion in the S&P 500 index very high.
What is the S&P 500 Index
The S&P 500 Index is a stock market index that records the performance of 500 publicly traded companies in the United States. The full name is “Standard & Poor’s 500 Index,” and it is maintained by Standard & Poor’s, a global financial analysis institution.
All of the companies covered by the S&P 500 Index are listed on major US stock exchanges, and it is considered an ideal benchmark for futures contracts and investment portfolios.
The importance of joining the S&P 500 Index
The S&P 500 Index is particularly important because it serves as a benchmark for many financial institutions managing trillions of dollars. These funds tend to buy stocks of newly listed companies in the S&P 500 Index, as failure to do so will eventually cause them to diverge from the index. The index can be seen as a discriminator of high-quality companies and funds.
If Tesla is included in the S&P 500 Index, it means that Tesla meets the qualifications for the index, and these funds will need to purchase TSLA stocks. This can also indirectly reflect Tesla’s corporate value.
According to data available online from Standard & Poor’s, the latest price of Tesla stock is approximately $1600 per share, and Maurer estimates that Tesla’s weight is about 0.91% of the total index, based on the number of floating shares of the electric car manufacturer. The S&P index has total assets of about $11.2 trillion, of which the target assets total about $4.6 trillion. Calculated based on Tesla’s recent stock price, Tesla’s estimated 0.91% weighting is worth about 26 million shares. This means that by joining the S&P 500, Tesla can release its stocks to high-quality funds with trillions of dollars in assets.But what’s interesting is that Tesla currently does not belong to either the S&P 400 or the S&P 500 index. The S&P 400, also known as the S&P MidCap 400, is a stock market index of the S&P Dow Jones indices.
It serves as a barometer for the US mid-cap stock market and is the most widely followed mid-cap index in existence. Stocks must have a market capitalization between $1.6 billion and $6.8 billion at the time of inclusion in the S&P 400 index.
Typically, index funds that track the S&P indices only require internal transfers of shares from the S&P 400 to the S&P 500. However, since Tesla is not currently part of either index, fund companies may need to buy large amounts of the stock if Tesla eventually qualifies for the S&P 500.
If Tesla announces its eligibility to be included in the S&P 500 index in its Q2 earnings report on July 22nd, it could trigger a frenzy of purchases by index funds that track the S&P 500 index.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.