Tesla will join S&P 500 in December

• S&P Dow Jones Indices announced Tesla will join S&P 500

• Stock to be added to the index in December

• Approximate weight of 1%

• Index operator considers 4 different scenarios of inclusion

• Stock expected to launch US session over 10% higher

Shares of Tesla (TSLA.US) rallied in the US after-hours trading yesterday while shares of the US EV manufacturer quoted on the German stock exchange (TSLA.DE) are trading over 10% higher today. Announcement from S&P Dow Jones Indices is the driver behind the move.

S&P Dow Jones Indices, a company that maintains many well-known stock market indices, announced that Tesla will join S&P 500 index, effective from December 21st. Tesla has met the main requirement for inclusion - 4 consecutive quarters of profits - in Q2 2020 but the index operator decided not to include the stock in S&P 500 index in September. Company that will be removed from the index to make room for Tesla will be announced at a later date.

There are 4 different scenarios of Tesla inclusion in S&P 500. Source: S&P Dow Jones Indices, XTB

Massive market capitalization of Tesla - almost $400 billion - makes it one of the biggest additions to S&P 500 during the last decade… and it also creates some issues. According to the announcement from S&P Dow Jones Indices, Tesla will have an approximate weight of 1% in the index. Such a big weight may trigger massive rebalancing of ETFs and other index funds tied to S&P 500 and, in turn, some stocks could be liable to major price swings. To address this issue, the index operator is looking for feedback from market participants whether to include Tesla's weight in the index all at once (regular December rebalancing effective date, 21.12.2020) or in two tranches (14.12.2020 and 21.12.2020). 4 different scenarios that are being taken into consideration are outlined in the table above. Spreading the inclusion across two dates could limit resulting volatility. Index operator is also looking for feedback on whether regular one-week notice on stock weight in the index will be enough or whether market participants prefer such an announcement to come earlier.

According to the latest pre-market trades, Tesla (TSLA.US) is seen opening at the upper limit of the post-split trading range ($458). Source: xStation5