Tesla is surging on its coming inclusion in the S&P 500 — here's what it means for the stock

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Shares of Tesla surged on Tuesday after S&P Dow Jones Indices announced that the company will join the S&P 500 — a historic milestone for Elon Musk and his electric vehicle company, and one that will also lead to billions of dollars worth of Tesla shares changing hands as index managers buy the stock.

“We expect TSLA shares to trade sharply higher on the news,” said Garrett Nelson, analyst at research firm CFRA. Tesla jumped more than 12% during early trading on Tuesday, adding more than $30 billion to its market capitalization at the opening bell.

Based on Tesla’s size — at its current valuation it will be among the S&P’s 10 largest companies — Credit Suisse estimates that passive funds will have to buy around 95 million shares, with active managers bringing the total add to around 125 million shares. This means significant selling in other positions, to the tune of around $51 billion, according to S&P Dow Jones Indices, which said Tesla’s addition will “generate one of the largest funding trades in S&P 500 history.”

But some believe the buying this year — shares have more than quadrupled in 2020 — was in anticipation of Tesla being added to the index, meaning any stock pop could be short lived.