Wedbush's Dan Ives: Tesla is not a car company

Dan Ives, managing director at Wedbush Securities, joins "Squawk Box" to discuss Tesla's stock price as a result of the company being included in the S&P 500. Subscribe to CNBC PRO for access to investor and analyst insights on Tesla and more: https://cnb.cx/2BT2E7y

Electric vehicle maker Tesla is poised to enter the S&P 500 in what will be the largest rebalancing in the history of that index.

The new index with Tesla in it begins trading on Monday, but all the trading action happens at the close on Friday.

The trading volume will be so heavy, some are concerned it could result in fireworks at the close.

S&P estimates that approximately 129.9 million shares of Tesla will need to be purchased to add to the S&P 500. At the current market price of $655, indexers would need to buy $85.2 billion in Tesla stock at the close on Friday. However, there are billions more that will need to be bought by “closet indexers” that do not officially pay S&P, but nonetheless track the index. No one knows how much these “closet indexers” will buy, but it could be 50%-100% above the “official” $85.2 billion estimate.

Even at the lower estimate, that means that more than $85 billion in the rest of the S&P 500 will need to be sold. This will be by far the largest rebalancing in the history of the S&P. The prior record of $50.8 billion was in September 2018.

“This will be one of the largest trading days in a long time,” said Harry Whitton of market maker Old Mission, noting that the large dollar amount involved could make it the largest trading day in history.

How Tesla will change the S&P 500

The sheer size of Tesla will have a significant impact on the S&P 500, which is weighted by the free-float market capitalization of each company.

Here’s how Tesla will change the S&P 500:

Ranking: 7th largest
Weighting: 1.52%
2021 P/E ratio: from a (pricey) 22.3 to a (even pricier) 22.6
Source: S&P Dow Jones Indices

Like all mega-cap stocks, it will not take much of a move in Tesla’s price to move the S&P 500: For every $11.11 Tesla moves, the S&P 500 will move 1 point.

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