Tesla shares leap on news it will join prestigious S&P 500 index

Tesla stocks surged 13 per cent after trading on Monday (US time) on news that it would be included in the prestigious S&P 500 index, meaning it will likely attract increased interest from professional funds managers and investors.

The Californian EV maker’s addition to the benchmark Dow Jones index has been anticipated for some time, and the company became eligible after reporting its fourth consecutive profitable quarter, and thanks to its market value now at $US386 billion ($A537 billion).

SP Global has confirmed that Tesla will be added to the index prior to the open of trading on December 21. Stocks jumped in after hours trading as money managers that track the S&P 500 clambered to add Tesla to portfolios.

“This is another major feather in the cap for Tesla bulls joining the S&P 500,” said Wedbush Securities analyst Dan Ives, as quoted by CNBC.

“It speaks to the sustained profit trajectory that Tesla is now finally getting into this elusive club after much noise on the Street.”

Tesla stock has increased fivefold in 2020 on the strength of numerous developments: from introducing the Model Y, the crossover variant of the Model 3 that became the world’s most successful electric car, to gigafactories opening, under construction or announced on three continents, and to bouncing back from the Covid-19 pandemic to post a record third quarter including a net income of $US809 million ($A1.1 billion).

More recent developments – the unveiling of Tesla’s long term battery plan, and the roll-out of its “fully functional” Full Self Driving beta to select drivers – have not yet gained traction n in market value terms, as investors cautiously wait to see both new technologies come to full fruition.

But the addition of Tesla to the S&P 500 is clearly buoying investors now. Based on Monday’s value, it will be in the top ten of most valuable company’s in the index.

SP Global said in its release that, “Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback …. to determine if Tesla should be added all at once …. or in two separate tranches.”

According to comments made by Musk at the company’s Q3 2020 earnings call in October, Tesla’s next moves are focussed on ramping up Model Y production in Fremont, commencing Model Y production in Shanghai, and completing construction of the Berlin gigafactory (at which it will make more Model Ys).

It also recently announced a rare “design refresh” for the Model 3, which included a number of upgrades, significantly including the efficient heat pump used in the Model Y.

However, a report form Electrek suggests that this 2021 Model 3 will no longer be available in the $US35,000 base Standard Range variant, which has only been available “off-menu” since not long after after its introduction.