BREAKING - Tesla to Join S&P 500, Spark Epic Index Fund Trade

Tesla (NASDAQ:TSLA) Inc is set to join the S&P 500 in December, a major win for Chief Executive Elon Musk that boosted the electric car maker's shares 14% on Monday in anticipation of a $51 billion trade by index funds adjusting their holdings.

S&P Dow Jones Indices announced that the company would join the S&P 500 index prior to the opening of trading on Dec. 21, potentially in two tranches making it easier for investment funds to digest.

With a stock market value over $400 billion, Tesla will be among the most valuable companies ever added to the widely followed stock market index, larger than 95% of the S&P 500's existing components.

Its inclusion means investment funds indexed to the S&P 500 will have to sell about $51 billion worth of shares of companies already in the S&P 500 and use that money to buy shares of Tesla, so that their portfolios correctly reflect the index, according to S&P Dow Jones Indices. Tesla will account for about 1% of the index.

Additionally, actively managed investment funds that try to beat the S&P 500 will be forced to decide whether to buy Tesla shares. Such funds manage trillions of dollars in additional assets.

Up about 450% in 2020, the California car maker has become the most valuable auto company in the world, by far, despite production that is a fraction of rivals such as Toyota Motor (NYSE:TM), Volkswagen (DE:VOWG_p) and General Motors (NYSE:GM).

Many investors believe Tesla's stock is in a bubble, and some have warned against adding it to the S&P 500 at current levels.

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