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Tesla joining the S&P 500? Here’s how it could happen and why it matters

Tesla could make it onto the S&P 500, if Elon Musk’s company reports profitability today when it releases its second-quarter earnings.

Tesla joining the S&P 500? Here’s how it could happen and why it matters
[Photo: Vlad Tchompalov/Unsplash]
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Update Wednesday, 5 p.m. ET:

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Tesla reported its fourth quarter in a row of profitability, beating analysts’ estimates, meaning it now does qualify for inclusion on the S&P 500.

Original story:

Tesla, meet the S&P 500.

The electric car and renewable energy company could make it onto the prestigious index, if it reports profitability today when Tesla releases its second-quarter earnings at 5:30 p.m. ET.

Let’s break down how this works.

So all a company needs to do is turn a profit to be added to the S&P 500?

No. To be eligible a company must have four consecutive quarters of reported profitability. The financial details released today could put Tesla there.

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So if Tesla turned a profit in Q2, it’s included?

It’s not automatic—rather, Tesla would then be eligible for consideration.

How is that done?

There’s an Index Committee that evaluates companies, using a variety of measures. The number of included companies is capped at 500, so if a new one is added, another is ejected. The committee meets monthly.

What are some of the requirements that companies must meet?

To be eligible for the S&P 500, a business must be U.S.-based; be traded on the New York Stock Exchange, Nasdaq, or CBOE; be highly liquid; have an unadjusted company market capitalization of $8.2 billion; and have a public float of at least 50% of its shares outstanding.

Examples, please?

Sure! Amazon, 3M, Walmart, Apple, Microsoft, Under Armour, JPMorgan Chase, Bristol-Myers Squibb, and McDonald’s are all currently S&P 500 companies.

In the S&P 500 world of powerhouse stocks, how big is Tesla?

It’s up there. It has a market cap of close to $291 billion. The share price was $1,612.43, up by $44.07 or 2.81%, in early-morning trading.

Why is the S&P 500 so important?

It’s treated as a proxy of the U.S. equity market. The index covers approximately 80% of the available market capitalization. The index began with 233 companies in 1923; the S&P 500 in its current form was launched in 1957.