Tesla (NASDAQ:TSLA) share price zooms 8% on S&P 500 news

Tesla Inc (NASDAQ: TSLA) shares jumped as high as 12.8% overnight after it was included in the S&P 500 Index for the first time. Here's why.

Tesla car driving along

Image source: Tesla

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

We were expecting some big moves from the Tesla Inc (NASDAQ: TSLA) share price overnight (our time), and Elon Musk's baby certainly did not disappoint.

The Tesla share price has risen by 8.21% to US$441.61 a share. Tesla closed at US$408.09 on Monday (US time), but opened at US$460.17 on Tuesday (up 12.8%) before sliding over the course of the trading day to US$441.61. On this price, Tesla shares are up 413% year to date.

So why were we expecting a big move from this electric vehicle and battery manufacturer?

Well, yesterday investors received the news that Tesla is finally set to join the S&P 500 Index on 21 December, after months of speculation.

Why is the S&P 500 so important?

The S&P 500 is one of the most tracked indexes in the world (if not the most tracked). It represents 500 of the largest public companies in the US.

But you might be wondering why Tesla isn't already a part of the S&P 500 – especially given its market capitalisation is currently more than US$400 billion, and has been above US$300 billion for months now.

Well, in contrast to other indexes like the S&P/ASX 200 Index (ASX: XJO), entry to the S&P 500 is not based on market cap alone. According to our Fool colleagues in the US, entrants are required to be approved by a committee run by S&P Global Inc (NYSE: SPGI), the company behind the index (as well as the ASX 200). That's why Tesla has been present in exchange-traded funds (ETFs) tracking non-S&P 500 indices, like the Vanguard US Total Markets Shares Index ETF (ASX: VTS), but not in S&P 500 ETFs like the iShares S&P 500 ETF (ASX: IVV).

Additionally, approval for S&P 500 entry is also subject to meeting certain criteria, such as a trading volume threshold and 4 consecutive quarters of profitability. Tesla achieved this last milestone back in July, and as a result was expected to be admitted into the S&P 500 back in September, which did not eventuate.

Why does index inclusion result in a higher Tesla share price?

If a stock is added to an index, it means that all ETFs, managed funds and other investment vehicles that track the index are compelled to buy it. And because the S&P 500 is one of the most-tracked indexes in the world, any new entrants will have an army of investors and funds clamouring to buy the stock.

What's more, Tesla is a massive company, and will thus be commanding a large presence in the index from the start (unlike most new S&P 500 entrants that get slotted in at the back end). Assuming Tesla's current share price, it looks as though it will be approximately the 11th stock in the index by market capitalisation and be given a weighting of roughly 1.19%. If a stock joined the index from the back end, it would be looking at a weighting of something like 0.01%.

That's a lot of buying pressure that's going to be flowing into the Tesla share price when the company is admitted into the index on 21 December. Last night's share price appreciation is likely the result of some investors jumping the gun with excitement and anticipation.

Sebastian Bowen owns shares of Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Man looks up at apple on his head.
International Stock News

Warren Buffett-led Berkshire Hathaway has 22% of its $290 billion portfolio invested in 1 stock that's up 749% in 9 years

Warren Buffett has an unrivaled track record allocating capital, but maybe the best dollar gain occurred with a decision made…

Read more »

Woman and man calculating a dividend yield.
International Stock News

Is Nvidia stock a buy now?

Nvidia stock has rallied impressively in the past three months, and trades at a premium valuation.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
International Stock News

Netflix: Strong sales and wider margins

In the second quarter, Netflix reported 16% year-over-year revenue growth and beat bottom-line expectations.

Read more »

Man charging an electric vehicle.
International Stock News

Why Tesla stock plummeted 21.3% in the first half of 2025 — and what comes next

After rallying last year, Tesla stock has seen a big pullback in 2025.

Read more »

a young woman lies on the floor propped on her elbows holding a green apple to her mouth amid a large scattering of green apples around her on the floor. She is smiling and holding her mouth wide open as she is about to take a big bite of the apple she holds in her hand near her mouth.
International Stock News

Why Apple is a great dividend stock, despite its low yield

This cash-rich company is returning more than $100 billion a year to investors.

Read more »

Close-up of a business man's hand stacking gold coins into piles on a desktop.
International Stock News

Could Investing $10,000 in Nvidia Make You a Millionaire?

At its incredible highs today, can investing in Nvidia stock still make you a millionaire?

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Google is spending billions to plug into this underrated power source

Google requires a substantial amount of power to support its cloud and artificial intelligence (AI) operations.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Where will Nvidia stock be in 5 years?

Nvidia's shares have climbed back to all-time highs as investors regain optimism in its AI infrastructure business.

Read more »