Precision in Practice

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Precision in Practice Article
September 2020

In late August Tesla’s (TSLA) stock price reached all-time highs, with a market capitalization topping $400 billion, having doubled in size in just the past two months. It is now the most valuable car company in the world, having surpassed Toyota Motor in July. Yet, despite its presence in several flagship large cap equity benchmarks, Tesla has not yet qualified for inclusion into the widely-tracked and prestigious S&P 500® benchmark. That may soon change as market speculation has ramped up considerably following Tesla’s latest earnings report in July.

TSLA's Membership & Potential Membership in Key Large Cap Equity Indices 



Date Added

Return Since Addition

Russell 1000




FTSE Russell 1000® Growth




Morningstar US Large Cap












S&P 500 (hypothetical)




Source: Factset; internal estimates. Data as of August 24, 2020

Why is Tesla absent from the S&P 500 index while it has been included in most other major US Large Cap Equity indexes? The S&P 500 is a breed apart. Unlike the other benchmarks that have already included Tesla in their indices, inclusion in the S&P indices in not purely rules-driven and systematic; rather inclusion is determined by a committee at S&P’s discretion. We will dissect some of the mystery around S&P’s index selection process, provide color on S&P’s criteria around the potential add, and discuss the impact to the market of Tesla joining the S&P 500 index.

The S&P 500 index selection criteria contains both quantitative and qualitative aspects. The quantitative factors include positive net income and four consecutive quarters of positive net income. For the second quarter of 2020, Tesla reported positive GAAP net income of $104 million, as well as positive net income for the sum of the latest four quarters. With this milestone, the company now meets all quantitative criteria for inclusion in the S&P 500 index.

Despite meeting the quantitative criteria for inclusion, Tesla’s addition to the S&P 500® is not yet a foregone conclusion given the qualitative dimension of S&P’s inclusion criteria. The quality of earnings could be a key issue with the committee. Tesla’s positive profitability has been driven by the sale of regulatory credits to other auto manufacturers who need offsets in order to reach their emissions standards. For the second quarter of 2020, they recorded $428 million in revenue from the sale of emissions credits against GAAP net income of only $104 million.

Volatility in Tesla’s stock price may be another key issue for the committee and concerns about the sustainability of the company’s returns. Year-to-date through August 24, 2020, Tesla has risen +384.5% while the S&P 500 has risen by 7.6%. Over the past twelve months, the stock skyrocketed by +852.8%. It is these qualitative considerations that give rise to speculation to its addition.

Performance Comparison of Tesla vs S&P 500



S&P 500 (TR)







2020 YTD



Post 2Q earnings (7/21 - 8/24)






Pandemic peak-to-trough (2/19 - 3/23)



Source: Bloomberg. Data as of August 24, 2020.

If S&P moves forward with adding Tesla to the S&P 500, the most likely date for inclusion would be during the next quarterly rebalance scheduled for the close of September 18, 2020. As the September rebalance also includes S&P’s annual free float review, the announcement could come as soon as the close of September 4, 2020 which would most likely spark continued run-up in the stock price.

We estimate that Tesla’s projected weight in the S&P 500 could be between 1.15-1.25% of the index, depending on S&P’s adjustments for free float and based on Tesla’s closing price of 2,014.20 as of August 24, 2020. This would rank it around twelfth in the index by weight, ahead of such notable names such as Disney, Pfizer, Intel and Coca-Cola. This would also rank Tesla as one of the top three largest additions to the S&P 500 over the past 26 years, rivaling the addition of Berkshire Hathaway (2010) and surpassing Microsoft (1994), Google (2006), and Facebook (2013). In terms of new additions to the S&P 500, this would rank as the largest in the past 16 years.

Though Tesla carries a lofty market capitalization of $400 billion, the trading impact of adding it to the S&P 500 is expected to be manageable. According to S&P’s estimates, there were approximately $11.2 trillion of assets under management either benchmarked against or indexed to the S&P 500 as of July 31, 2020. Of this total, indexed assets comprised $4.6 trillion. Using the above projected weightings for Tesla, index managers in aggregate would need to add between $53 to $58 billion in TSLA exposure (roughly 26 to 28 million shares); representing about 2.1x average daily volume for the 30 days ending August 24, 2020. 

As index managers with over $300bn in index assets, the importance of understanding the rules around index inclusions and the potential market impact of large events such as Tesla’s future inclusion is what we do every day. We will be ready for Tesla to join the S&P 500 whenever the S&P Committee makes it final determination.

Mellon Investments Corporation (“Mellon”) is a registered investment advisor and subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”). Any statements of opinion constitute only current opinions of Mellon, which are subject to change and which Mellon does not undertake to update. This publication or any portion thereof may not be copied or distributed without prior written approval from the firm. Statements are correct as of the date of the material only. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorized. The information in this publication is for general information only and is not intended to provide specific investment advice or recommendations for any purchase or sale of any specific security. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by Mellon. Mellon makes no representations as to the accuracy or the completeness of such information. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment and past performance is no indication of future performance. The indices referred to herein are used for comparative and informational purposes only and have been selected because they are generally considered to be representative of certain markets. Comparisons to indices as benchmarks have limitations because indices have volatility and other material characteristics that may differ from the portfolio, investment or hedge to which they are compared. The providers of the indices referred to herein are not affiliated with Mellon, do not endorse, sponsor, sell or promote the investment strategies or products mentioned herein and they make no representation regarding the advisability of investing in the products and strategies described herein. Please see for important index licensing information.