Tesla on verge of qualifying for inclusion in S&P 500 (TSLA)

elon muskAP Photo

  • Tesla is on the verge of qualifying for inclusion in the S&P 500 index, one of the most popular stock indexes followed by investors, The Wall Street Journal first reported.
  • The last criteria that Tesla needs to fulfill to be considered for inclusion in the index is profitability.
  • The sum of its previous four quarters’ net income must be positive, with the most recent quarter also showing positive net income. 
  • Tesla reported profits for the past three quarters, and one more quarter of positive net income for the electric-car manufacturer would solidify its eligibility in the index.
  • Visit the Business Insider homepage for more stories.

Tesla is on the verge of satisfying all criteria necessary to be eligible for inclusion in the S&P 500 index, based on the S&P’s US Indices methodology, The Wall Street Journal first reported.

The electric-car manufacturer still doesn’t meet the S&P’s positive net income criteria.

To be eligible for inclusion in one of the most popular stock market indices, a company needs to post a cumulative profit, as measured by Generally Accepted Accounting Principles, over its previous four quarters, with its most recent quarter also showing a profit.

Tesla has reported a net profit for its past three quarters. The company posted a profit of $143 million in third quarter 2019, $105 million in fourth quarter 2019, and $16 million in first quarter 2020, according to company filings.

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Tesla would have been eligible for inclusion today if its second quarter 2019 loss of $408 million was instead a loss of less than $264 million, or the sum of its previous 3 quarters of profits. 

If Tesla can eke out a profit in the second quarter of 2020, it will be eligible for inclusion.

If Tesla instead reports a loss in the second quarter, it will have to wait for its third quarter results to potentially meet eligibility criteria.

Tesla may have to wait until the third quarter if analyst estimates for upcoming second quarter earnings are accurate. Analysts surveyed by FactSet expect a second quarter loss of $387 million, according to The Wall Street Journal. 

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Elon Musk has recently put immense pressure on the local health officials of Alameda County, fighting to reopen its factory in Fremont and ramp up its car production amid the coronavirus pandemic. 

On Monday, Tesla was able to get its factory back up and running. It now has six weeks left in the quarter to deliver vehicles and potentially turn a profit.

If Tesla is able to post four quarters of cumulative profits and meet all eligibility requirements, it will be up to the S&P’s Indexing Committee to add Tesla to the S&P 500 index.

Tesla currently has a market value of $150 billion and was up more than 1% to $810 in Monday morning trading.

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