Tesla is finally joining the S&P 500.
S&P Dow Jones Indices announced on Monday that the carmaker will be added to the benchmark index effective prior to trading on Monday, Dec. 21. Based on Monday's closing prices, Tesla would be one of the 10 most valuable companies in the index.
Tesla shares spiked more than 9% on the news, as money managers with funds that track the S&P 500 will need to buy the stock for their portfolios.
The make-up of the S&P 500 is determined by what's known as the "Index Committee" at S&P Dow Jones Indices. Inclusion in the index is based on quantitative as well as qualitative factors.
Tesla was snubbed in September after it met criteria to be included in the index but was not initially picked by committee.
Companies must be U.S. based, and listed on either the NYSE, the Nasdaq or the Cboe. They also must have a market cap of more than $8.2 billion, and report four straight quarters of profit as determined by U.S. generally accepted accounting principles (GAAP).
Even if a company meets these criteria as well as the other stipulations, however, it still does not guarantee inclusion in the index. The committee meets on a quarterly basis to rebalance the index, but companies can be added or removed from the S&P at any time. Given the potentially market-moving nature of additions and deletions from the index, the process is tightly guarded. Even companies that are set to be added receive no advance warning.
Tesla recently reported its fifth consecutive quarter of profit. Beating estimates, the company reported third-quarter revenue of $8.77 billion. The company also reported that it delivered 139,300 vehicles during the third quarter, a new record for Tesla.
But adding Tesla is no easy feat after the stock's record run pushed the company's market valuation above $380 billion, making it the largest company ever to be added to the S&P, according to analysis from equity research firm Baird.
According to S&P Dow Jones Indices, there's over $11.2 trillion in assets benchmarked to the S&P 500, with roughly $4.6 trillion of the total in indexed funds.
"Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback 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," S&P said.
The company that Tesla is replacing in the S&P 500 will be announced at a later date.
CNBC's Jennifer Elias contributed to this story.
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