Tesla jumps 14% on S&P 500 inclusion speculation Now the 10th by market value

https://www.cnbc.com/2020/07/13/tesla-jumps-11percent-on-sp-500-inclusion-speculation---now-the-10th-biggest-us-stock-by-market-value.html

by devy • 6 years ago

48 87 6 years ago

cnbc.com

andrewmcwatters• 6 years ago

Clearly worth more than book value of approximately $59.76 at the time of writing. But over 28 times so? Sure, OK.

DudeInBasement2• 6 years ago

But muh: AI, Battery tech, Charging stations.

I imagine at some point it will drop back to reality, but not this year

enraged_camel• 6 years ago

Much of this is driven by retail investors, of whom there are many more now since sports betting has not been available for months.

jgalt212• 6 years ago

You raise a very interesting wrinkle here. When/if sports resume and the gamblers can gamble again, does the $TSLA money move back into sports?

RivieraKid3• 6 years ago

Tesla's market cap per car sold is 112x higher than Volkswagen (sales data for last year). They never had a profitable year.

chrisseaton• 6 years ago

Tesla completely turned the industry on its head with their electric cars - something dinosaur incumbents like Volkswagen were either unwilling or unable to do. Maybe people see a future in Tesla and not as much in Volkswagen, and the price reflects the future not the past?

fzeroracer• 6 years ago

This seems like a similar argument to what I saw for Bitcoin before the crash came. Bitcoin prices were high because the bitcoin price reflected the future of currency and that bitcoin turned the finance industry upside down.

Barrin92• 6 years ago

Maybe people see a future in Tesla and not as much in Volkswagen, and the price reflects the future not the past?

Tesla's valuation is now three times higher than in April, what exactly is supposed to have happened in the last few months that changed investors minds about the long term future? Had they not turned the car industry on its head in April yet?

Certhas2• 6 years ago

VW is the company with the third largest R&D budget, after Amazon and almost tied with Alphabet. More than ten times larger than Tesla.

Over recent years they built a substantial tech base for EVs that they are on the brink of introducing at scale. The Zwickau plant alone is planned to scale to 330000 EVs/y next year. ICE production at Zwickau is shut down.

This is diametrically opposed to, for example, BMW who seem to be more doubling down on ICE with token efforts towards EVs for now. It's not insane to say that Tesla will eat BMWs share of the future, but that is valued ten times lower.

RivieraKid3• 6 years ago

Of course, I don't doubt that Tesla is innovative and doing many things right. I was talking about the valuation.

adventured2• 6 years ago

They never had a profitable year.

I think you're trying too hard.

Is Tesla overvalued? Very overvalued? Reasonable debate to have given where the market cap is at now.

However Tesla very obviously isn't being valued today based on whether they turned a profit in the past. Companies aren't valued by their profit from five years ago. That they have never had a profitable year, doesn't dictate whether they will in the future. Tesla has grown by nearly 300% in 3.x years. The market is primarily concerned about growth and cash burn rate, limiting excess red ink, not that they must immediately generate immense profit.

Tesla has also shown a drastic improvement in their operating picture. From negative $1.6 billion in operating income in 2017, to negative $252m in 2018, to positive $80m in 2019, to positive $841 million in the last four quarters. Investors tend to pay attention to direction in particular, betting on where the company is going.

slg3• 6 years ago

I think Tesla is extremely overvalued. I was long on them for years and cashed out at around $800 because I couldn't understand the valuation anymore. However, it is a mistake to compare Tesla best case scenario against current car companies. They are also a energy company, a battery company, a logistics company, and a transportation company.

For example, Uber isn't that far behind Volkswagen in terms of total valuation. If Tesla ever nails Autopilot, Tesla can immediately become Uber. Volkswagen doesn't have nearly as clear of a path to those extra revenue streams.

bmitc6• 6 years ago

How are they an energy or logistics company? What products or services do they sell that fit those categories?

bryanlarsen3• 6 years ago

I've been long Tesla since 2012. I agree, it's crazy overvalued. Every time that happens I sell about 1/3 of my holdings, which means I now have 15% of my original holdings. If I still had it all that would be a crazy pile of money, but on the other hand the bit that's remaining is just play money and I'm comfortable letting it ride and when get stressed when it inevitably drops again.

justicezyx• 6 years ago

I am happy for Tesla, and the original master plan to fund the Mars colonization.

I would politely remind Mr. Elon Must where he started. He was on a grand mission that I believe was right and important. That was the reason I became a Tesla stock owner.

xiphias2• 6 years ago

Tesla already succeeded by moving electrification of cars earlier than it would have been normally done by other car companies. The biggest change in the master plan is moving to self driving cars instead of cheap cars. We'll see how much time the achievement takes, but my guess is that it will be faster than replacing all cars in the world with electric ones.

boromi• 6 years ago

Short squeeze coming up?

DudeInBasement2• 6 years ago

They already got btfo a few months ago.

BobbyJo• 6 years ago

They get btfo every few months tho

bobcostas552• 6 years ago

It's a complete mystery to me why they don't raise some capital at this valuation. They could wipe off all the debt and have a decade's worth of capex in cash for a very small dilution.

jfengel• 6 years ago

Perhaps because they see it going even higher. In that sense they're like any other stockholder: they want to sell only when they think it has peaked. They're just fine having debt as long as they can get the debt cheaply: raising money with debt is easier and more flexible than issuing stock.

They see themselves as far more than a car company, and their opinion is that they are going to inherit a lot of the energy sector. I suspect that they believe their stock is still a bargain.

bobcostas552• 6 years ago

I mean Musk said the stock was overvalued at $700, fretting over whether to raise money at $1400 or $1700 seems a bit silly.

modeless• 6 years ago

They already did an offering earlier this year for $2B when it first started going crazy. You're right that they should do another.

What I don't understand is how all the S&P 500 index funds don't get soaked every time a stock enters or leaves the index. Everyone in the world can front-run those giant trades, just like we're seeing now. Do the index funds just absorb the losses every time or do they have enough flexibility to avoid it somehow?

dcolkitt• 6 years ago

Everyone in the world can front-run those giant trades

This is a perennial quant strategy. Buy the names likely to be included into the index, short those that are likely to be dropped.

And the answer is that arbitrage has mostly wiped out the premium. The average gain (loss) on being added (removed) to the index has steadily decreased since the 1990s[1].

[1] https://repository.upenn.edu/cgi/viewcontent.cgi?article=102...

bsamuels• 6 years ago

Great question; index funds rarely carry the entire portfolio of 500 securities - it's very expensive to manage that much stock at scale and rebalance each one.

What they do instead is hold a limited portfolio of 10, 50, 100 stocks from the S&P500 that best "represent" the index.

Technically Tesla is already in the S&P500; the real question is whether index fund managers are going to decide to start using it in their representation of the index.

The other commenter is also correct. There are many ways to hedge in favor of or against a stock issue becoming indexed by S&p500 funds in a way to dampen the impact of people trying to 'front-run' (although it's not actually frontrunning in the legal sense)

T-hawk• 6 years ago

As the sibling comment to mine says, predictive arbitrage will already have accounted for the price shift by the time the index inclusion/exclusion actually happens. That arbitrage means the price change effectively gets smeared over time, as the probability of being included in the index rises. The price effect of index inclusion isn't a binary in-or-out, it's a probability cloud based on speculation.

Consider a random company like say Dropbox, and take a wild guess that they might have a 2% chance of making the S&P 500 in the foreseeable future. That small chance is already built in to the current stock price, assuming efficient enough arbitrage. If that perceived chance were to rise, so would the stock price, and as it approached 100% would converge to the post-index inclusion value.

Stated another way: By the time an index fund needs to acquire a particular stock, enough arbitrageurs and market-makers have already acquired it that they're willing to sell at the price the index fund will pay. There isn't really a loss for the index fund to absorb. If there is, it shows up as tracking error in the fund's value not perfectly replicating the index, which is a common occurrence for plenty of reasons.

adventured2• 6 years ago

They should use $30b in stock to acquire Ford. Keep Ford as a separate operating entity. Use Tesla's tech and rapidly turn Ford into a 100% electric manufacturer. Ford would become Tesla's mass consumer arm. Scrap the ridiculous, impractical Cybertruck (which will flop after it initially sells well, the novelty will quickly wear off) and focus on electrifying Ford's very lucrative truck lineup. There is a risk Tesla's stock might crash if they attempted this (it might crash anyway though, given how extreme their valuation is), it'd be critical to convince the market that Ford would remain a separate operating entity. The goal would be to push Tesla's tech directly into a lot more vehicles, gain some further scale benefits here and there (there are some gains to be had from being able to directly leverage Ford's manufacturing scale), and reap vast profit from selling electric versions of Ford's high margin trucks (while getting Ford for a very steep discount vs where Tesla is trading pound for pound).

bryanlarsen3• 6 years ago

Ford has $155B in debt. I don't think they want to add that to their balance sheet, so that means they'd need to raise $180B to buy Ford.

nickik8• 6 years ago

They should use $30b in stock to acquire Ford. Keep Ford as a separate operating entity.

Horrifyingly terrible idea in so many ways it almost plow my mind.

Many legacy production sites that don't make much sense, with massive political entanglement and maybe even worse union labor contracts.

A balance sheet full of leases for cars that will collapse in value.

A product portfolio that has few profitable products and non that are gone be profitable in 5 to 10 years.

The massive amount of dealers you would have that have no intensive at selling EVs.

Use Tesla's tech and rapidly turn Ford into a 100% electric manufacturer.

So basically throw everything away Ford is currently good at and replace it with thing Tesla is already good at?

You need to completely redesign product to make them full EV, you can't just plot a bunch of batteries in a Ford truck and sell them.

crap the ridiculous, impractical Cybertruck (which will flop after it initially sells well, the novelty will quickly wear off)

Nonsense statement based on your own priors. It has more re-orders then anything and has an incredible price. If you are a contractor the operation cost will be unbeatable. If you are an off-roader the power and clearance will be unbeatable. If your a life-style drive you have something that is more unique then other trucks.

In terms of practicality it better then any other truck. The only thing I heard as a counter argument is that, it is not so easy to load from the side.

focus on electrifying Ford's very lucrative truck lineup

So just buy Ford so you can call your truck an F150? Those trucks all look the same, Tesla could just make a truck that basically looks the same.

You taking an a huge amount of assets that are quickly losing value, just to get a bunch of production legacy facilities that you have to convert to EV anyway.

Building new clean sheet production facilities without unions in strategic locations design for full vertical integration is a much better investment.

SilasX• 6 years ago

Tesla wasn't already in the S&P 500? Even at the more sane $100 share price, that would put it at ~$20 billion market cap, well above about two fifths of the existing S&P 500 companies.

Source: Sortable list last updated July 7: https://fknol.com/list/stock-list-sp-500-index.php

boramalper• 6 years ago

Companies must be profitable in the past four quarters to be qualified for inclusion; I might be wrong though.

cj• 6 years ago

Companies need a straight year of profitability to be included in the S&P 500.

Tesla has only had 3 quarters in a row profitable. If their upcoming quarter turns a profit, that will make 4 consecutive quarters.

snarf21• 6 years ago

It is more than just market cap that lets you into the S&P. There are also other rules. Tesla is projected to pass the GAAP positive earnings test soon.

A committee selects each of the index's 500 corporations based on their liquidity, size, and industry. It rebalances the index quarterly, in March, June, September, and December. To qualify for the index, a company must be in the United States, have an unadjusted market cap of at least $8.2 billion. At least 50% of the corporation's stock must be available to the public. Its stock price must be at least $1 per share. It must file a 10-K annual report. At least 50% of its fixed assets and revenues must be in the United States. Finally, it must have at least four consecutive quarters of positive earnings.

spocklivelong• 6 years ago

Valuations like these are unsustainable, and so far fetched from reality. It is only a matter of time before TSLA gets a correction, which will drop the stock ~ 30 - 40% from its ATH.

mrnobody_67• 6 years ago

... and yet they still haven't answered questions from David Einhorn about their accounts receivable: https://www.bloomberg.com/news/articles/2019-11-22/einhorn-a...

chvid• 6 years ago

Volkswagen once got to be the world most valuable public traded company ...

anw• 6 years ago

I love the idea of Tesla, and what it's helped promote. But I do worry about its cult of personality, and what effect that could have on the stock should something happen to Elon.

I got in around late 2012 because Elon spoke about really good ideas, and I really wanted to promote what he was talking about. It's been quite a ride, with the acquisitions of Solar City and Maxwell Technologies. Those additions made me have hope we'd see a real mover that could help get a lot of the world onto solar energy.

However, I look at the stock prices right now, and I can't help but see they've been greatly overvalued since ~January 2020 with the major driving force (in my opinion) only being the cult of Elon.

I admire what he's done, and his ambition, but I also worry if he gets removed or hit by a CyberTruck, if the company will still continue as it is now, or if it would spell disaster.

pletsch3• 6 years ago

Completely agree, Tesla's stock has a bus factor of 1. I do believe it's made a big enough push already to spark the change to clean energy, and that's what really matters here.

bmitc6• 6 years ago

I do believe it's made a big enough push already to spark the change to clean energy

Are there studies that show this? I don't see or know how any push in cars, electric or not, is necessarily moving us toward cleaner transportation much less clean energy.

antidaily• 6 years ago

Don't forget, the cars are really great.

anoncareer0212• 6 years ago

Looking into what happened with SolarCity is quite an eye opener. Self dealing, billions of dollars spent on a bankrupt entity, public subsidies demanded, spent, with no return...

Two weeks ago, Musk said they need a east coast gigafactory while Buffalo sits idle.

https://www.vanityfair.com/news/2019/08/how-elon-musk-gamble...

nickik8• 6 years ago

If the stock was driven by a 'cult' then it would have gone up differently.

It has gone up because auto players all lost like 30% because of COVID and Tesla lost like 5% while still being profitable and still show very good margin and demand.

Plus they products in their future that are gone sell incredibly well in addition to the massive scaling that is still ongoing for Model Y. Semi, Cybertruck are gigantic market that Tesla will have a huge market share in for the next 5 to 10 years at least.

I worry about Bus factor with Elon too, but to assign the stock price to him is a waste over estimation.

partiallypro• 6 years ago

I love Tesla, SpaceX and Elon (as a visionary) but don't understand the valuation. I remember when we (most of us) all laughed at this $420/share buyout valuation, because it was so far from reality...and now it's trading nearly 4x that, in less than a year...on really no real news outside of hitting production numbers. The fact that Tesla is now bigger than Toyota is absolutely bonkers to me. Toyota isn't that far behind the curve.

tdhoot• 6 years ago

This sucks for everyone in S&P 500 funds who didn't jump on the Tesla bandwagon because they thought it was overvalued. Now you got none of the upside but you get to hold the bag.

pmiller26• 6 years ago

Yet another good reason to invest in total market funds rather than S&P 500 funds.

rjkennedy98• 6 years ago

Is this the new IPO? Pump a stock till index investors are forced to own it?

tpae2• 6 years ago

As a former engineer at Tesla, the valuation does not make sense at all. Their internal infrastructure is a complete mess, and honestly, it's full of security issues, I wouldn't be surprised if things start falling apart.

rosywoozlechan• 6 years ago

A mistake some engineers make, I've made it myself, is thinking that a company's success has anything to do with how good the code is from a computer science ivory tower perspective. A fast growing startup usually has a huge mess from the fast growth no? Haven't seen it otherwise, but that's just my anecdotal sample size.

anonu• 6 years ago

Second this. A company is more than just software and code... It's also marketing, hype, goodwill, customer service, design, UX etc...

nickik8• 6 years ago

Unless you can provide evidence that other companies coding and infrastructure practices are many time better then Tesla the impact on valuation is basically 0.

tpae2• 6 years ago

I'm afraid of speaking out, but let's just say I've worked with many fast growing startups (several to IPO), and none of them were as bad as Tesla.

cvhashim• 6 years ago

Maybe talk to an investigative journalist anonymously? And report what you’ve seen..

llamataboot• 6 years ago

So individual heavyweights get to front-run the ETFs and then sell to them at an inflated value? Sounds about right...

mchusma• 6 years ago

Tesla really did accelerate renewable energy and battery tech by maybe a decade.

I would love to see them raise $20B and just massively move us another decade forward towards a sustainable energy future. But relative to Uber, etc Elon has always been less aggressive on equity raises, as he believes that constraints help.

Tesla jumps 14% on S&P 500 inclusion speculation Now the 10th by market value

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