Earlier this week, S&P Dow Jones Indices, the company behind the S&P 500 and Dow Jones Industrial Average stock market indices among others, announced that Tesla would soon be included in the S&P 500 index. The electric car maker will be added to the S&P 500 on December 21 in what will likely be the largest addition ever to the index measuring the stock performance of 500 large-cap companies in the United States.
While some may be surprised to see Tesla’s late addition to the index, after all the company’s market cap would have warranted its inclusion years ago, it’s important to note that there are several criteria a company must meet to become eligible. Aside from having a market capitalization of at least $8.2 billion, the company must be “highly liquid, have a public float of at least 50% of its shares outstanding,” and, this part is key, “its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be positive.”
While liquidity has long been an issue at Tesla – CEO Elon Musk admitted that the company was within “single-digit weeks” of bankruptcy in 2018 – the profitability criterion was the last one to be checked by the electric car maker. After years of losing money, Tesla posted a net profit in each of the five past quarters, meeting the profitability target by the end of the second quarter of 2020.