When Will Tesla Be Added to the S&P 500?

Rob Maurer

By posting a second quarter profit in late July, Tesla (TSLA) -Get Report became eligible for inclusion in the massive S&P 500 index. But weeks have passed and TSLA hasn't been added, leaving one question echoing around Tesla's corner of the internet: when will Tesla be added to the S&P 500?

First, it is important to remember that changes to the index are made by the S&P 500 selection committee, and while there are guidelines like profitability, they are only guidelines and are subject to change at the discretion of the committee.

"Unlike many other S&P Dow Jones Indices and the majority of indices offered by other index providers, there are no rigid or absolute rules for the S&P 500; the Index Committee have some discretion in selecting stocks or responding to market events," said former committee Chairman, David Blitzer, in a 2014 post.

So there is no guarantee Tesla will be added this quarter, or ever for that matter. For example, maybe the index committee would prefer to wait until Tesla is showing consistent profits without reliance on regulatory credit sales.

If we assume the committee does want to add Tesla, looking at historical changes to the index may give us some clues on timing. Here are key dates for each company added since 2017, further explained below:

Screen Shot 2020-08-09 at 9.02.57 PM

From the table, we can see that on average, the announcement of inclusion happened 43 days after these companies' last earnings report, and 39 days after their last quarterly or annual filing. However, because the S&P 500 is a large-cap index, most companies are not added due to achieving profitability for the first time. Generally they are added because their market caps have grown sizable enough to warrant their addition.

TSLA's market cap has been large enough to warrant inclusion for a long time, but the company didn't have the profitability. Only two other companies seem to have been included due to achieving profitability in the quarter before their addition to the index, Twitter and ServiceNow. These companies were announced 32 days and 25 days, respectively, after their quarterly filing.

Tesla published their second quarter 10-Q filing on July 28th. Using Twitter and ServiceNow as benchmarks could suggest an inclusion announcement for Tesla around August 25th. Using the average from all companies would suggest sometime around September 4th.

If we use the total dataset, understanding its imperfections, announcements do seem to appear slightly before the midpoint of the quarter, but there is a lot of variance and announcements can happen at any time. The following chart shows the distribution of inclusion announcements from the time of their last filing, separated in to ten day buckets.

Screen Shot 2020-08-08 at 9.36.21 PM

More announcements occur in the first 0-60 days than after 60 days, but the distribution from 0-60 days is relatively even.

There has been speculation that the committee may wait until September due to their quarterly rebalancing meeting that month. Historically, this has seemed to play a role in the first half of the year but not so much in the second. Still, September may be a bit more likely for this reason.

Screen Shot 2020-08-09 at 8.54.22 PM

Some have questioned if a particular day of the week is more likely for an announcement to occur. Here is a distribution of the announcements by day of the week. No announcements have happened on weekends.

Screen Shot 2020-08-08 at 10.01.44 PM

Distribution by day is relatively consistent, with Friday being most likely and Tuesday being least likely. Generally, changes to the index are announced at 5:15 pm Eastern Time on S&P Global's announcement page. On occasion, some changes have been announced later in the day.

For more analysis, including relative performance of stocks added to the index, please see the included video.

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Disclosure: Rob Maurer is long TSLA stock and derivatives.

Comments (2)
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josevirella
josevirella

Thanks Rob! Re-read this today to calm my nerves 😆