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Source: istock

Why Tesla Wasn’t Included in the S&P 500 Index

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Tesla shares were trading down over 12 percent in pre-market trading on Tuesday, Sept 8. after it didn't get included in the S&P 500 Index. On Sept. 4, the S&P 500 announced changes to the index and added three companies — Teradyne, Etsy, and Catalent. The S&P 500 removed H&R Block, Kohl’s, and Coty from the index. Tesla stock didn't get included in the index, which was a surprise. Why was Tesla stock excluded from the S&P 500?

What is Tesla's stock news?

Tesla stock bulls expected the company to get included in the S&P 500 Index after it posted a net profit in the second quarter of 2020. The second quarter marked the company’s fourth consecutive net profit, which is a key condition for inclusion in the S&P 500. Dan Ives of Wedbush Research is among the Tesla bulls. He said that “S&P 500 inclusion is now likely a done deal” for Tesla after the second-quarter earnings report.

After Tesla wasn’t included in the index, Ives called it “a bit a shocker.” If Tesla got included in the S&P 500, ETFs and index funds that invest in the index would then have had to buy the stock according to its weightage in the index. As a result, Tesla stock might have gone even higher.

Why wasn't Tesla added to the S&P 500?

The S&P 500 index committee doesn't usually comment on specific inclusions or exclusions. The index has maintained the same stance this time as well. The S&P 500 regularly balances the index so that it reflects the market. Last month, the Dow Jones Industrial Average Index also announced a rebalancing to reflect Apple’s stock split. The Dow Jones Index is a price-weighted index. A stock’s weightage in the index is determined by its stock price.

The S&P 500 is a market capitalization-weighted index. A constituent’s weightage is based on its market capitalization. The index committee rebalances the constituents so that sectors have appropriate weightage in the index.

What is Tesla's stock price today?

Tesla shares were trading at $367 per share in pre-market on Sept. 8. The stock has gained almost 400 percent this year. Last week, Tesla momentarily surpassed Visa to become the seventh-largest U.S. company by market capitalization. NIO, the Chinese electric vehicle maker, has also rallied 347 percent so far in 2020.

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Source: Getty

There are concerns about Tesla’s soaring valuations. The company's market capitalization is way ahead of established automakers. Recently, Tesla’s market capitalization soared above the combined market capitalization of Volkswagen, Toyota Motors, General Motors, Ford, and Fiat Chrysler.

Tesla shares are down on Sept. 8 after getting a snub from the S&P 500. While the index wouldn’t disclose the exact reason for leaving out Tesla, the company’s dismal profitability record and volatile shares could be possible reasons. 

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