Tesla Shares Surge 4% Following S&P 500 Announcement

Christmas has come early for Tesla after S&P Dow Jones Indices announced they would be adding the company to the S&P 500 all at once on December 21st. It was thought it was more likely the company would be added in tranches. Consultations with investors on how to add Tesla had been ongoing, so their addition itself was not a surprise.

Tesla Inc – valued at $53 billion dollars – is one of the largest index additions ever. The disruption that will inevitably be caused by money managers offloading stocks to make room for the monster newcomer meant many predicted Tesla would be added to the index twice. This would have helped offset some of the market volatility. After all, the inclusion of the company will force index funds to buy an eye-watering $73 billion dollars worth of shares.

Instead, it would appear the S&P have decided to rip the bandaid off. The move will no doubt please more aggressive investors looking to take advantage of the addition.

In a media statement, S&P Dow Jones Indices stated that “in its decision, S&P DJI considered the wide range of responses it received, as well as, among other factors, the expected liquidity of Tesla and the market’s ability to accommodate significant trading volumes on this date”.

The 4% jump in share value for Tesla with this announcement is the icing on the investment cake. The Elon Musk fronted electric car maker has seen a 40% swelling in value since it was announced they would join the index on November 16th.

Tesla sees 600% growth in 2020

That’s far from all, as the company has surged 600% throughout 2020, making them the most valuable auto company in the world – and Musk the world’s second richest man. At their current value, they will be the seventh biggest company in the S&P 500 at their current market value, and will fall between Berkshire Hathaway Inc and Visa Inc.

That said, there are challenges ahead. In an email to staff, Elon Musk warned that the company’s profitability is a mere 1%, with stock success being down to expectations of huge profits down the road – presumably one that Tesla will hope to be filled with electric cars.

Musk has called the future success of the company “a tough Game of Pennies — requiring thousands of good ideas to improve part cost, a factory process or simply the design, while increasing quality and capabilities.” He may be correct, but many will view the outlook as deeply ironic considering their sky-rocketing stock value.

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