Not only double the TSLA value they hold, but force them to buy more TSLA shares as the relative weight of TSLA rises in the NDX relative to other equities it contains. TSLA would be ranked #18 or so in the S&P500 and weighted around ~0.83% today.
If S&P500-based index fund hold $5T today, they will need to purchase about $41.5B in TSLA when it is added to the NDX. That's asubstantial portion of the float which will have an exaggerated effect on the SP, triggering more forced buying, and greatly encouraging speculators who will further bid up the SP. See what I'm getting at?
S&P 500 Companies - S&P 500 Index Components by Market Cap
Even better, if TSLA's SP goes up faster than other components, those large Index funds must rebalance by SELLing underperformers and BUYing more TSLA.
Underperformers like NYSE:XOM (EXXON is now just 83.2% of TSLA's Mkt Cap). That's the virtuous cycle, one which accelerates after S&P500 inclusion
Cathie Wood has been specific in her answer as to why ARK Invest does not include T.E. in their 5-yr estimates for TSLA. The reason is that NO ONE ELSE DOES. ARK Invest wants to produce an estimate that is strictly comparable to other analysts, and to NOT give them the easy out (when they are proven wrong) that ARK included revenue streams that the other did not. ARK wants to compare Apples to Apples, and be shown to be correct, years ahead of the analyst community.
Cheers!
Say the SP 500 is worth $20T and Tesla is worth 200B, that's a 1% weight.
VOO is managing $200B, and so it needs to add $2B of TSLA to give TSLA a 1% within its portfolio.
Say VOO buys $2B worth of TSLA at $1000 each, that's 2M shares. Assume that we have 200M shares outstanding at $1000 each.
Say TSLA's valuation goes up 100% without new equity issuance, that means we now have 200M shares outstanding at $2000 each.
For simplicity's sake, let's say SP 500 remains at $20T because a couple other companies worth $200B just got booted and so the increase in the market cap of TSLA is just enough to keep the SP 500 at $20T.
So, now, VOO needs to own $4B worth of TSLA, right? So how many shares of TSLA do we need to arrive at $4B?
$4B/$2000 = 2M shares, still.
Now VOO still has $200B under management and TSLA has a 2% weight without any new share purchases.
This is the main disagreement I have with some others. I don't think the appreciation of TSLA stock in the interim will affect how many shares index funds have to buy. They still have to spend more for the same number of shares but they're not gonna have to buy more shares.
My thesis is the primary drivers of index fund's ownership are going to be (1) asset under its management and (2) subsequent TSLA offering.
(1) Say index funds own an aggregate 20% of the 500 companies. That means together they will buy 20% of float of any company that gets added to the index.
If, at a later date, that AUM increases to 25%, either through new inflow into SPY/VOO, or by the inception of new index funds, then they together will buy another 5% of all companies in the index, including TSLA.
(2) If TSLA is diluted by 100% through a HUGE stock offering, then all index funds must double the number of TSLA shares they already have, regardless of how much each share is worth after dilution.
If you think about it, if they have to buy more shares AND pay more for each share as TSLA goes up, that's double dipping and double dipping is almost always wrong.