Tesla shares soar in busy trade ahead of S&P 500 debut

Shares of Tesla gained on Friday in a busy day for the electric car maker's stock ahead of its much-anticipated grand entrance into the benchmark S&P 500 index.

Elon Musk's Tesla on Monday will become the most valuable company ever admitted to Wall Street's main benchmark, accounting for over 1% of the index. The shares have surged over 60% since mid-November, when its debut in the S&P 500 was announced.

The company's shares were up 1.2% to $663.80 shortly after trading was underway, hitting a record high during the session.

Tesla's addition to the S&P 500 forced index-tracking funds to buy over $80 billion worth of Tesla shares by the end of Friday's session so their portfolios correctly reflect the index, according to S&P Dow Jones Indices. Those funds will simultaneously have to sell other S&P 500 constituents' shares worth the same amount.

Turnover in Tesla shares hit about $13 billion about a half hour into Friday's session, with trading volume topping 19 million, according to Refintiv data.

"Index managers will need to sell a large position across the other S&P 500 constituents in order to fund the addition of TSLA, which could lead to substantial impact across the entire index," Virtu ITG Canada's head of index research, Ivan Cajic, wrote in a report this week.

Actively managed funds that benchmark their performance against the S&P 500, many of which until now have avoided investing in one of Wall Street's most controversial stocks, will also be forced to decide whether to own Tesla.

"Everyone has known this is coming for two or three weeks, so the real question now is if it continues to be an outperformer and, if so, then what is the catalyst," said Thomas Hayes, managing member at Great Hill Capital LLC in New York.

While some investors view Musk as a visionary entrepreneur, others worry about missed production targets and corporate governance risk after Musk was forced to step down as chairman to settle fraud charges in 2018.

California-based Tesla’s stock has surged 700% year-to-date, putting its stock market value at over $600 billion and making it the sixth most valuable publicly listed U.S. company, with many investors viewing it as wildly overvalued.

Tesla’s meteoric rise has made it the most valuable auto company in the world despite production that is a fraction of rivals such as Toyota Motor, Volkswagen and General Motors.

Tesla is by far the most traded stock by value on Wall Street, with $18 billion worth of its shares exchanged on average in each session over the past 12 months, easily beating Apple, in second place with average daily trades of $14 billion, according to Refinitiv.

A blockbuster quarterly report in July cleared a major hurdle related to profitability that had prevented Tesla's inclusion in the S&P 500.

About a fifth of Tesla's shares are closely held by Musk, the chief executive, and other insiders. Since the S&P 500 is weighted by the amount of companies' shares actually available on the stock market, Tesla's influence within the benchmark will be slightly diminished compared with its overall value.