Tesla Speeds Into the S&P 500's 5th Position

Traders are keeping an eye on Tesla (TSLA) today as it joins the S&P 500 (USA500) as the fifth largest company on the index. 

Tesla’s big year rolls on as they prepare to join the S&P 500 today. This relatively young automaker has popularized electric vehicles over the last decade. In the last year alone, traders have seen shares rise 721% from $81.14 on December 20th, 2019 to $666.20 on December 18th 2020. 

For a company to join the S&P 500, it must meet the high standards set forth by Standard & Poors. These include:

• Requiring that the company is US based.

• The company must have a market capitalization of at least $8.2 billion- Tesla’s Market Cap is $658.791B.

• Hold high liquidity.

• Public Float of at least 10%.

• Total sum of its last four earnings quarters must be positive, which Tesla has successfully achieved.

Tesla’s fourth consecutive positive earnings report attracted trader attention as the company grew, despite a seven week shutdown of their California factory during the first half of 2020 in line with COVID guidelines.

S&P 500 Potential Volatility

As a flurry of headlines has preceded this event, traders are considering how Tesla's addition in such a high position on the index may bring with it some risks.

Some companies join the index in a lower position, then work their way up. With Tesla’s huge market capitalization their 1.6% weight introduces inherent risk to the index, should the share price fall dramatically at any point. 

Despite this, Tesla’s journey puts them into a strong position in the EV stocks market as other automakers, such as VolksWagen (VOW.DE) & General Motors (GM), continue to beef up electric vehicle production capabilities.