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Tesla’s factory in Shanghai. It is by a wide margin the world’s most valuable car manufacturer.
Hector Retamal / AFP via Getty Images
Tesla
stock is rising ahead of a very big day for stock. Tesla will join the
S&P 500
Monday and the stock price at the end of trading on Friday determine Tesla’s weighting in the index.
The S&P 500 is weighted by market capitalization, adjusted for the number of shares available for trading, which for Tesla (ticker: TSLA) is approximately 80%. The rest is in the hands of insiders, including CEO Elon Musk.
Tesla’s current market value is approximately $ 610 billion. About $ 490 billion of that is available to trade. And the total market value of the S&P 500 is approximately $ 32 trillion.
All those numbers add up to a weighting of about 1.5% for the Tesla in the index. Tesla is already the most valuable company ever added. With a weighting of 1.5%, it could also be the largest weighting ever. That title is held by
Berkshire Hathaway
(BRK.B). The original weight in the S&P 500 was about 1.4%. Berkshire was added in 2010.
Adding large companies is complicated. The S&P actually considered adding Tesla in two actions – with a smaller weighting and then a full weighting – to mitigate the impact. But after asking for responses from fund managers, it decided not to.
The trade impact was significant. Shares are up about 58% since Nov. 16, when the decision was made by the S&P index committee to include Tesla. The S&P and
Dow Jones Industrial Average,
by comparison, only 3% and 1% have increased since then.
Barron’s suggested that a 60% profit was too much as speculation initially raged about Tesla’s inclusion in the S&P 500 after the company reported a second-quarter profit. We were wrong. Shares are up more than many experts expected.
Part of the reason for our skepticism was Tesla’s meteoric rise this year. Shares are up 673% so far, making it the world’s most valuable automaker by a wide margin.
Toyota Motor
(TM) ranks second with a market cap of approximately $ 250 billion.
Between $ 5 trillion and $ 6 trillion is invested in funds indexed according to the S&P 500. Those funds start buying Telsa shares Monday, and they have about 120 million shares for sale. Tesla has traded an average of 45 million shares a day in recent days.
There is a potential for a decline in post-index purchases. Everyone knows how big that could be, as well as the rise in the pre-index.
Tesla shares were up 4.1% to $ 648 a share Thursday afternoon. Indexation is likely the dominant factor, but Barclays analyst Brian Johnson raised his price target 84% from $ 125 to $ 230. That’s a big increase, but still a long way from $ 648. Johnson is assessing the stock Sell.
Corrections and Reinforcements: The S&P 500’s market cap is approximately $ 32 trillion. An earlier version incorrectly said $ 3.2 trillion.
Write to Al Root at [email protected]