Tesla’s entrance into the S&P 500 index on Monday, December 21 is expected to be preceded by a huge trade. An unprecedented $80 billion of the electric car maker’s stock could change hands by the end of trading on Friday.
Tesla is about to become the most valuable company ever admitted to Wall Street’s main benchmark. It will account for over 1% of the S&P 500 index’s value. The EV maker’s shares have surged about 60% since mid-November, when its debut in the S&P 500 was first announced.
Inclusion to the S&P 500 will force index-tracking funds to buy over $80 billion worth of Tesla shares by the end of Friday’s session. That’s so that their portfolios correctly reflect the index. Those funds will simultaneously have to sell other S&P 500 constituents’ shares worth the same amount.
Actively managed funds that benchmark their performance against the S&P 500 will now be forced to decide whether to own Tesla. Many of them have avoided investing in one of Wall Street’s most controversial stocks. So far, at least.
The Rise of Tesla
Tesla’s stock has surged almost 700% year-to-date. The company is currently values at over $600 billion. That makes it the sixth most valuable publicly listed U.S. company. However, many investors still view it as wildly overvalued.
Tesla’s meteoric rise has made it the most valuable auto company in the world. Despite that crown, it still produces only a fraction of the cars that rivals such as Toyota, Volkswagen, and General Motors do.
Tesla is by far the most traded stock by value on Wall Street. Roughly $18 billion worth of its shares are exchanged, on average, in each trading session over the past 12 months. That number easily beats Apple, who is in second place with average daily trades of $14 billion, according to Refinitiv Data.
About a fifth of Tesla’s shares are held by Elon Musk, the company’s Chief Executive Officer. A large portion of Tesla compensation is tied to stock performance (and paid in stock options).