Tesla’s shares, which are not included in the S.P. 500, fell 7 percent after the market.

Tesla’s shares, which are not included in the S.P. 500, fell 7 percent after Friday’s trading. The stock closed up 2.78 per cent at $418.32 on Friday. Etsy, the craft sales platform, Teradyne, the supplier of automated test equipment, and Catalent, the pharmaceutical company, will be included in the Standard and Poor’s 500 index to replace tax service provider H.R Block, cosmetics group Coty and department store Kohl’s.

Tesla's shares, which are not included in the S.P. 500, fell 7 percent after the market.

Tesla’s second-quarter results show that the company has made a profit for four consecutive quarters and is already eligible to enter the Standard and Poor’s 500-stock index. Part of the reason Tesla’s share price has soared this year is also based on investors’ expectations that the stock will be included in the Standard and Poor’s 500-stock index. But DataTrek Research, a market research firm, has previously said that while Tesla appears to be eligible to join the S.P. 500, its revenue could put the Dow Jones Indices Committee on hold.

The composition of the S.P. 500 Index is determined by the S.P. Dow Jones Indices Committee that companies incorporated into the index must be located in the United States and listed on the New York Stock Exchange, NASDAQ or Cboe with a market capitalization of more than $8.2 billion and must achieve four consecutive quarters of earnings in accordance with U.S. GaAP.

Even if a company meets these standards and other requirements, there is no guarantee that it will be included in the index. The committee meets quarterly to rebalance the index, but can add or remove companies from Standard and Poor’s at any time. Given the potential market volatility of the increase and removal of the index’s components, the modification process is strictly protected and even companies that are about to be added are not warned in advance.

Tesla, which now has a market capitalisation of more than $380 billion, would be the most valuable component of the index if it were added to the Index, potentially triggering the largest buying wave of index funds in U.S. stock history. The Standard and Poor’s 500 index is weighted by market capitalisation, and once Tesla joins, index funds will have to adjust their assets to new weights to keep up with the index.

Jim Bianco, head of Bianco Research in Chicago, said the fact that Tesla would be included in the Standard and Poor’s 500 index meant it would suck trillions of dollars. “As part of their benchmark, fund managers can’t ignore it.”