CEO Elon Musk did it again — Tesla (NASDAQ:TSLA) stock is simply flying to the moon on Tuesday morning. What is the big catalyst this time? Well, after months of speculation and big hope, Tesla is finally making its way into the S&P 500. As a result, investors are cheering behind Tesla stock.
Although this news is exciting, investors may be unclear on what it means. Why is Tesla stock rallying so much? And why else is the electric vehicle leader so popular in 2020?
Here are nine things for investors to know about the TSLA S&P 500 news.
- The announcement from S&P Dow Jones Indices came after the closing bell on Monday.
- According to the news, Tesla stock will join the S&P 500 before the start of trading on Monday, Dec. 21.
- This is not the first time Tesla has been eligible for inclusion. It long surpassed the market capitalization requirement of $8.2 billion and had reported four consecutive quarters of profitability by September.
- However, during the previous quarterly meeting of the deciding committee, members decided to pass Tesla over. At the time, the exclusion sent Tesla stock down in the market.
- Musk recently reported the fifth straight quarter of profitability and record delivery numbers.
- After that news, S&P Dow Jones Indices decided to add the company to the S&P 500.
- Importantly, Tesla did not know about the news in advance. This is because of the market-moving potential of such an announcement.
- Once it is officially part of the index, it will be one of the 10 most-valuable constituents.
- S&P Dow Jones Indices executives are still deciding how to add Tesla stock to the benchmark index. Importantly, because of the size of the company, the S&P 500 may rebalance to include Tesla in two waves.
Tesla Stock and the S&P 500 Catalyst
Importantly, for Musk and for Tesla, this is yet another victory for electric vehicles. This year has already brought so much success to the company, which became the most valuable carmaker by market cap. Tesla has also continued to deliver on profit and delivery expectations, showing that it can now hold its own after years of doubt from Wall Street.
Joining the S&P 500 as a disruptive EV company shows just how strong the institutional backing is behind the market niche. In fact, much of the pre-market rally in Tesla stock is due to the fact that investors know more upside is to come. Why? Fund managers that track the S&P 500 will have to accumulate shares.
Now that Tesla has checked this box, what will come next? Investors are looking to the novel coronavirus and its effects on consumer preferences, as well as the projected election of former Vice President Joe Biden, to boost the stock. It is hard to say what goals Musk will set next, but Tesla has some big plans in place. It is still working on producing the Cybertruck as well as a $25,000 lower-cost EV to boost adoption. Additionally, the company is working on expanding its footprint via factories in China, Texas and Berlin. When those factories come fully online, more growth could be in store.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer for InvestorPlace.com.
