Tesla’s Earnings Make It Qualified for S&P 500 Index Inclusion. Here’s What’s Needed to Happen Next for It to Be Included.

Elon Musk
  • Tesla reported blockbuster second-quarter earnings on Wednesday which exceeded the expectations of Wall Street.
  • They also revealed the fourth consecutive quarterly profit for the automaker, the last milestone it had to achieve for inclusion in the famous S&P 500 index.
  • Tesla will be the biggest corporation ever to be added to the S&P 500, based on its market capitalization close on Thursday of around $281 billion.
  • Visit The Financial Today’s homepage for more stories.

Tesla ($TSLA) reported blockbuster second-quarter earnings on Wednesday which exceeded the expectations of Wall Street. They also revealed the fourth consecutive quarterly profit for the automaker, the last milestone it had to achieve for inclusion in the famous S&P 500 index.

Others think Tesla’s introduction to the index is a foregone conclusion, including Wedbush analyst Daniel Ives, who wrote in a Thursday note that it’s “likely a done deal.” But merely meeting the index inclusion requirement doesn’t guarantee the company being added into the S&P 500.

To be listed in the S&P 500, companies must be headquartered in the United States, trade on the New York Stock Exchange, Nasdaq, or Cboe, have a market capitalization of at least $8.2 billion, and report four consecutive quarters of profit according to the US generally accepted accounting principles (GAAP.)

Now that Tesla has fulfilled the eligibility criteria of the S&P 500—when an opportunity presents itself—it will be added to a list of other qualifying applicants and considered for inclusion.

An opportunity would include if an existing S&P 500 company no longer meets eligibility criteria due to mergers, acquisitions, or major restructuring. Companies can also be removed from the index if they substantially violate one or more of the eligibility criteria, according to S&P.

If such an occurrence happens, multiple variables will be taken into consideration by a body called the Index Committee when choosing a new member to join the index, including sector balance and size representation, the firm said.

The Index Committee is composed of full-time, qualified staff members of S&P Dow Jones Indices. The committee meets monthly and the index is rebalanced every quarter.

However, regardless of this schedule, according to the S&P spokesperson, the committee can add or remove companies at any time. When a corporation is added or withdrawn by the committee, it issues a public statement detailing the changes.

Because of its scale, the addition of Tesla to the index may pose some specific challenges. Tesla will be the biggest corporation ever to be added to the S&P 500, based on its market capitalization close on Thursday of around $281 billion.

Tesla’s shares have risen over 260 percent year-to-date.

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[Business Insider]

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