Tesla’s Snub from the Dow: It’s Not You, It’s the Methodology

When comparing Tesla to other large companies within the confines of stock market indexes, it’s vital to acknowledge the unique challenges posed by its notable share price and market behavior. Despite being a behemoth in terms of market capitalization, Tesla faces roadblocks to inclusion in certain indexes like the Dow Jones Industrial Average (DJIA) primarily due to its price-weighted nature. Other large-cap companies, often with lower per-share stock prices, fit more seamlessly into the DJIA’s calculation, a dynamic that underscores the peculiarities of index inclusion rather than a direct measure of a company’s size or significance. This structural limitation often leads to interesting contrasts with companies that are staples of modern industry benchmarks. The DJIA, given its methodology, tends to favor companies that maintain a balance of price per share that aligns with its historical continuity, which is why firms like Apple and Microsoft, after adapting their stock splits, can seamlessly integrate into the index, unlike Tesla, which still faces hurdles as discussed in this article.