Tesla Analyst Breaks Down Market Implications Of EV Maker's Inclusion In S&P 500 Index

After a long wait Tesla Inc TSLA finally managed to receive S&P Global's blessings for addition to the S&P 500 Index, a broader gauge of large-cap U.S. stocks. The EV maker will be added to the S&P 500 Index, effective prior to the opening of the stock market on Dec. 21.

The Inflows & Outflows: Tesla's addition will likely result in about $78 billion of inflows into the stock from passive funds indexed to the S&P 500 Index, according to Morgan Stanley analyst Boris Lerner. This would mean about 17% of Tesla's free float of about $454 billion.

Tesla will be the largest addition to the S&P 500 Index ever and will become the eighth heavily-weighted stock in the index, given the estimated weight of 1.46%, Lerner said. Tesla's addition will also impact other large-cap U.S. stocks that are already part of the index, as their weight in the index will be reduced to make room for the EV maker.

Lerner sees outflow of about $3.5 billion to $5 billion from Amazon.com, Inc. AMZN, Apple Inc AAPL and Microsoft Corporation MSFT.

Related Link: Analyst Says Tesla's $5B Stock Sale Is Smart Strategic Move

Another offshoot is the increase in the weighting of the consumer discretionary sector within the S&P 500, the analyst said. Additionally, Amazon's impact on the consumer discretionary sector will be reduced.

What S&P 500 Inclusion Means For Tesla: Although the event is discounted in the stock already, Morgan Stanley expects the stock to remain bid through the rebalance.

The firm recommends buying Tesla shares on weakness ahead of the rebalance. After the rebalance, the stock is likely to trade down slightly in line with historical trends.

Morgan Stanley has an Overweight rating and $540 price target for Tesla's stock.

In early trading Thursday, Tesla shares were slipping 5.11% to $573.60.