NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.
Advertiser Disclosure

Tesla joins the S&P 500: what impact will this have on UK investors?

Tesla joins the S&P 500: what impact will this have on UK investors?
Image source: Getty Images

Tesla’s inclusion in the S&P 500 index is further great news for the company. It’s been a really good year for Elon Musk’s electric car manufacturing business. Tesla shares have proved a popular choice for investors.

Compare stocks and shares ISAs

If you’re planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, we’ve created a list of some of the top stocks and shares ISAs.

Keep reading to find out how this news will impact UK investors and the future Tesla share price.

Importance of the S&P 500 listing

Matthew Leibowitz, founder and CEO of trading platform Stake, had this to say about Tesla joining the S&P 500:

“Tesla’s inclusion in the S&P 500 index is a watershed moment for the company. Since it’s listing in 2010 it’s been one of the most polarising stocks globally. Even with so many doubters along the journey, since Tesla’s IPO it has been the best performing major tech stock, returning over 4000%. The inclusion confirms its current status as a leading player commercially, and no longer as just ‘that electric car company’. It now sits alongside companies like Campbell’s Soup, Caterpillar and Chevron that have been in the index for over 60 years, while also joining the new guard of companies like Amazon, Google and Netflix.”

The S&P 500 contains five hundred of the most important companies operating in America.

A common misconception is that the index simply contains the five hundred biggest US companies by market cap. This isn’t true. There are other criteria companies have to meet before joining the index.

This led some people to wonder why Tesla weren’t already included seeing as they were already bigger than a lot of companies within the S&P 500.

Who decided on the Tesla S&P 500 addition?

Companies joining the S&P 500 have to be approved by a committee.

When the Tesla share price was skyrocketing earlier this year, many were wrongly presuming their addition would be automatic. Even though Tesla shares increased in popularity, leading to a higher market capitalisation, they still needed approval.

There were concerns in the past over Tesla’s financials, which were preventing their inclusion.

Tesla invest heavily in research and development. This is expensive work and it gave them a high price-to-earnings ratio compared to competitors. Also, their revenue streams are quite complex and aren’t just based on car sales.

Now that they’ve been approved, bring included in the S&P 500 will make Tesla the most valuable company ever to be added to the index.

Are you making these 3 common investing mistakes?

These all-too-common investing errors can cause you to miss out on the long-term wealth-building power that shares can hold….

To help you side-step these pitfalls, and move forward on your path to wealth-building, we’ve created a free report, “The 3 Worst Mistakes New Investors Make”.

Just enter you best email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Will this affect the Tesla share price?

It’s been an extremely positive year for the Tesla share price. They’ve been a standout success amongst US shares, propelling Elon Musk to become one of the world’s richest people.

Tesla’s inclusion in the S&P 500 is definitely not a negative. However, it’s likely that this news has already been priced into their current share price.

In the long-term, joining the S&P 500 is good because a portion of investments in this popular index will now be directed towards Tesla.

There are some concerns that the company is currently overvalued, so being included in the S&P 500 doesn’t necessarily mean more short-term growth for Tesla.

This news does pave the way for Tesla to keep expanding and developing. The future could be even brighter for this ambitious company.

What does this mean for UK investors?

People impacted the most by Tesla’s stellar year will still be those who chose to buy shares in the company. Tesla shares have been one of the most frequently traded and held stocks on platforms like Stake.

Tesla’s inclusion in the S&P 500 does mean that many investors holding this index fund will now have exposure to Tesla.

It’s worth keeping in mind that as big as Tesla is, they will only make up about 1% of the S&P 500. So investing in an S&P 500 index fund will only give you a limited investment.

Investing in Tesla

Some passive investors are happy to see Tesla’s induction into the S&P 500 create more diversification within the index.

If you think Tesla is just getting started and want more involvement, buying shares with one of our top-rated share dealing accounts could be a good investing option.

Whether you choose to buy Tesla shares or invest in an S&P 500 fund, using a stocks and shares ISA means that you can capitalise on any future performance in a tax-efficient way.

Was this article helpful?

Reviewed and rated 4 stars out of 5 by MyWalletHero

Need investment advice? Get a free initial review lasting up to 1 hour, plus £50 off any follow-up advice.

MyWalletHero has sourced you a £50 discount off the cost of advice when you find an independent or whole-of-market financial adviser through*. All advisers are FCA-regulated, qualified and give fully unbiased advice. To find yourself an adviser fast and for free – use the Unbiased matching tool.

*This is an offer from one of our affiliate partners. For more information on why and how we work with partners, click here.

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.