After months of speculation, car manufacturing startup Tesla will become the newest addition to the S&P Dow Jones Indices on December 21, the index announced on Monday.
The value of Tesla’s shares jumped more than 10% in the after-hours session on Monday in response to the news .
The brainchild of billionaire Space Karen Elon Musk, Tesla met the criteria to be included in the S&P 500 last September, but was snubbed and passed over by what’s known as the “Index Committee” at S&P Dow Jones Indices until now. In the intervening months, investors have speculated wildly that the electric vehicle pioneer would soon find its way to the index, paving the way for the company’s current market valuation of more than $US380 ($519) billion.
The massive valuation would make Tesla the largest company ever added to the S&P 500, a market-cap-weighted index consisting of top companies that represent “a broad cross-section” of the stock market.
According to CNBC, companies must have a market cap that exceeds $US8.2 ($11) billion, report four straight quarters of profit and be based in the U.S. to even merit consideration for the index. Because of the potential for additions and deletions to the index to shake up the markets, the selection process is carefully guarded, which could help to explain the S&P committee’s reluctance to include Tesla during its initial consideration of the company.
“Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date,” S&P said in the announcement.
The company that Tesla is replacing on the index will reportedly be announced at a later date.