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.
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.
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.
