What happened

Shares of electric-car maker Tesla (NASDAQ:TSLA) jumped on Friday afternoon. The stock rose from levels around $1,410 in the first half of the trading day to nearly $1,500. As of about 2 p.m. EDT, the stock was up approximately 7% for the day.

The growth stock‘s move follows speculation that the company may be considering building a small hatchback for the European market. Also helping is news of the possible inclusion of Tesla shares in the S&P 500 market index.

Tesla's Model S, X, 3, and Y

Image source: Tesla.

So what

When a Twitter user reached out to Tesla CEO Elon Musk on the platform Friday to note that the Model Y is too big for some cities in Europe, he asked whether the company would consider a smaller European-style hatchback.

“Probably a good one to design & engineer in Germany,” Musk responded, implying the vehicle may be up for consideration for Tesla’s product road map in Europe. 

Tesla is currently building a factory in Berlin, Germany, where the company has said it plans to eventually produce both its Model 3 and Model Y. In its first-quarter shareholder letter, Tesla said it was on track to start the first Model Y deliveries of vehicles made from its new factory in Berlin in 2021. 

Tesla has explored the idea of bringing to market vehicles made specifically for local markets. The automaker has already said it wants to build an original car for the China market that is built in the country. A European-style hatchback built in Berlin would extend these efforts.

Also helping the stock on Friday may be news that it could be up for consideration to be included in the S&P 500 index — a move that could boost demand for the electric-car maker’s shares.

Now what

Investors should eye this large jump in Tesla’s stock price on such news with skepticism. Shares have witnessed a torrid run higher recently, giving them a frothy valuation that’s becoming difficult to justify.

When the company reports earnings later this month, investors will likely get updates on the company’s expansion plans and its expectations for the rest of the year. Tesla is scheduled to report its second-quarter results after market close on July 22.