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Why the Tesla share price surged 13% in after-hours trade

We examine what caused investors to pile into Tesla stock, after the market closed, on Monday November 17.

Tesla share price surges on S&P inclusion news

After-hours trade on Monday proved to be a dramatic one for Tesla’s shareholders: By 7:37PM New York time, investors had bid the Tesla share price up 13% to $461 per share, in response to news that the company would be added to the S&P 500 in December.

Elon Musk’s own personal fortune rose by $15 billion as a result of these after-hours moves, as reported by Bloomberg.

Over the last few quarters, Tesla’s exclusion from the S&P 500 benchmark has become a key talking point. This is primarily due to the fact that the automaker has consistently begun to deliver profits, with Tesla’s latest third quarter results release – marking the fifth straight quarter of profitability for the company.

Beyond having a market capitalisation of at least $8.2 billion, stock which is satisfactorily liquid and has ‘a public float of at least 50% of its shares outstanding’, for a company to be included in the S&P 500, its prior quarter must be a profitable one and ‘the sum of its trailing four consecutive quarters' earnings must be positive.'

In September then, when Tesla was snubbed from the S&P, some were left scratching their heads. As we reported at the time:

‘In an email exchange with MarketWatch, Daniel Ives, from Wedbush Securities, plainly said:

"Tesla not getting into the S&P 500 club is a head scratcher and the stock will likely be down for the indexing implications."

"The Champagne was on ice to get into the S&P 500, [it] was baked into shares" – also via market watch.'

Since we wrote that on September 9, the Tesla share price is up more than 40% – at the after-hours price. Tesla is set to be added to the S&P 500 on Monday, December 21, as part of the December rebalancing.

There may however, be one final road block to that inclusion, with the S&P Dow Jones Indices noting that feedback is currently being sought ‘through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date. Tesla will replace a S&P 500 company to be named in a separate press release closer to the rebalance effective date.’

The automaker had a market capitalisation of $386 billion at the close of Monday’s trading session.

The Q3 revisited

As noted above, Tesla posted another profitable quarter in the Q3 of FY20: Total revenues were up 45% (QoQ) to $8,771 million, operating margins surged 253 basis points to 23.5% and GAAP net income came in at $331 million.

Looking ahead, the company noted that it remains committed to its previously stated goal of 500,000 vehicle deliveries in 2020. Moreover, with margins dramatically improving during the quarter, the company also noted that:

'We expect our operating margin will continue to grow over time, ultimately reaching industry-leading levels with capacity expansion and localisation plans underway.'

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