November 16th, 2020 by Johnna Crider
The S&P Global Dow Jones media center just announced that Tesla (TSLA) will be added to the S&P 500 on Monday, December 21. The press release noted that this is to coincide with the December quarterly rebalance and that, due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through consultation to the investment community to determine if TSLA should be added all at once to the rebalance effective date or in two separate tranches that will end on the rebalance effective date. The company that Tesla will replace has not yet been named (keep reading for my 2.5¢), but will be announced closer to the rebalance effective date.
Details of the S&P Dow Jones Indices Consultation
In a separate press release, S&P Dow Jones Indices released announced of its consultation on the implementation of Tesla’s addition to the S&P 500. Members of the investment community will choose from the following:
- The full float-adjusted market capitalization (FMC) weight all at once, effective prior to the open of trading on Monday, December 21, or
- In two tranches, with the first tranche added one week earlier (effective prior to the open on Monday, December 14), and the second tranche added effective on the rebalancing effective date.
The table below, provided by S&P Dow Jones, shows the projected weight of TSLA in the S&P 500. Recent market analysis shows that TSLA will be one of the largest weight additions to the S&P 500 in the last decade and will generate one of the largest funding trades in the history of the S&P 500.
As you can see, TSLA’s estimated funding trade will be around $51 billion. The main question the S&P 500 wants to know is how to add TSLA to the index. If you would like to participate in the consultation, you can visit the online survey here.
A Win For Tesla, Clean Energy, & FUD Fighters
Manufactured FUD (fear, uncertainty, and doubt) is something many of Elon Musk’s critics use to dissuade potential Tesla customers or investors from buying the products or the stock. Many members of the TSLAQ crowd (TSLAQ would be Tesla’s stock symbol if it went bankrupt) often use FUD to target specific Tesla owners and shareholders on Twitter. Some troll, some outright stalk, and some attack in various ways.
The issue is that this group of people will go as far as it takes to spread their message of doom and gloom — ranging from commenting on SpaceX, The Boring Company, or Elon Musk’s personal life to sending harassing messages through my own jewelry website (yes, this has happened). They are trying their darnedest to bring down Elon Musk. One of the lies they spread as much as they could was that Tesla would never be added to the S&P 500. What will they claim now?
I spoke with Ross Gerber, CEO of Gerber Kawasaki, who shared his thoughts with me on TSLA’s success today. “This is great news for Tesla, although not surprising. Tesla is one of the most successful American companies as well as one of the most valuable. It not only makes sense for it to be included in the index, but it will also improve the index’s performance!” This is a really great win for those of us who believed in Tesla, hung in there, and fought the negativity. Ross pointed out that this is Tesla’s validation of all of its successes, and I agree.
Who Is TSLA Kicking Out Of The S&P 500?
This is pure speculation on my part, and I could be 10000% wrong, but I think Exxon is on the chopping block. I think Exxon would be a great candidate for Tesla to replace. It would double the win for clean energy, for sure, but that’s not why I think it’s on that chopping block.
Back in September, it was noted that Exxon was running out of cash and faced a $48 billion shortfall through next year. That number was calculated by Reuters by using cash from operations, commitments to shareholder payouts, and costs for Exxon’s planned expansion program. However, Exxon had to do an about-face on those plans and review where it can cut its costs. One of those costs included a possible dividend cut, but analysts believe that is unthinkable. It was also noted that Exxon’s ability to finance its global expansion was no longer assured and that it had to borrow $23 million to pay its bills. Exxon also posted its first back-to-back quarterly losses ever, a loss of $1.86 billion.
Back in July, Tesla’s market value overtook that of Exxon’s. This was a sign, according to Bloomberg, that investors are increasingly betting on a global energy transition away from fossil fuels. This is truly a symbolic energy shift — from fossil fuels to sustainable energy and renewables. Clean energy is definitely on the rise and Exxon, a true giant in the oil industry, is falling. Perhaps the S&P 500 is moving out of the way and picking up TSLA to rebalance.
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