Tesla Inc. (TSLA) - Get Report shares surged the most in more than two months Tuesday after it was added to the S&P 500 benchmark in a move that could trigger more than $50 billion in portfolio re-shuffling to make room for Elon Musk's clean-energy carmaker.
Tesla, which became eligible for inclusion following its fourth consecutive quarterly profit over the summer, will likely be added to the S&P 500 in two phases, with the final inclusion set for December 21. Tesla will sit just ahead of Visa Inc. (V) - Get Report, and just below Warren Buffett's Berkshire Hathaway (BRK.B) - Get Report on the U.S. benchmark.
The addition of Tesla, one of the world's most compelling growth stories and one of the market's most active stocks, is likely to trigger around $50 billion in portfolio activity as active investors, as well as passive funds, make room for its $400 billion-plus market valuation and expected 1% weight for the index.
"While it was well anticipated that Tesla would be added to the S&P 500, what was unclear was the timing. With the announcement, Tesla represented the largest ever new member added to the S&P 500," said Credit Suisse analyst Dan Levy. "The passive add is estimated at around 95 million shares, while the passive + active add is estimated at around 125 million shares."
"Potentially one of the pushbacks on adding Tesla to the S&P was the elevated stock price … with Tesla stock down considerably from its peak $500 level at the start of September, the stock’s recent pullback provides a better opportunity for index trackers to build positions," Levy added.
Tesla shares were marked 9.8% higher in early trading Tuesday to change hands at $448.00 each, a move that would vault the group's market value just below $425 billion.
Tesla posted third-quarter earnings of 76 cents per share in October, more than double last year's tally and well ahead of the Street consensus forecast, as revenues surged 38% to $8.771 billion amid record delivery volumes of 139,300 units.
That pace, Tesla said, should increase even further over the final months of the year as the group held to its 2020 forecast of 500,000 deliveries, a figure that suggests the fourth quarter total would need to rise past 180,000.