In a move investors have long anticipated, S&P Global -- the body that manages some of the most prominent stock indices in the U.S. -- announced on Monday that Tesla (NASDAQ:TSLA) will be joining the S&P 500 Index before trading commences on Monday, Dec. 21. Tesla stock jumped on the news and is currently up more than 14% in after-hours trading.
The electric-vehicle maker was widely expected to make the cut in early September during the index's quarterly rebalancing, but it failed to make the list at that time.
Tesla stock has skyrocketed so far in 2020, gaining 388% as of the market close on Monday, pushing its market cap to nearly $387 billion. Because of the size of the addition, officials have yet to decide whether Tesla will be added all at once on the effective date, or if it will be divided into two separate tranches to be completed by the Dec. 21 deadline. S&P Global has taken the unusual step of eliciting investor feedback before making the decision.
Being included in the index not only confers bragging rights but could also help push shares higher, as mutual funds, exchange-traded funds, and others that track the S&P 500 will be adding the stock to their portfolios. This increase in demand is likely to provide a temporary boost for Tesla shares.
In mid-July, Tesla announced its fourth consecutive quarter of GAAP (generally accepted accounting principles) profitability, one of the last remaining hurdles the company needed to clear to be considered for inclusion in the index. However, Tesla was initially passed over, leaving some investors scratching their heads as to why.
Some Wall Street analysts have speculated that the stock's well-known volatility may have factored into the previous decision to snub Tesla. Others have suggested that the sale of regulatory credits, and the part that played in the company's profits, may have also weighed on the verdict.