Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Chunky Jr.]

That story floating recently... Dealerships are paying GM to not have to sell Cadillac EV. Up to a $$$ million per dealer in some cases. Now there's some EV cashflow!

Isn't it the other way around? GM paying Cadillac dealerships to close down? I think Rob Mauer said that something like 17% of them have taken up GMs offer.

 

[Krugerrand]

Mongo going out a limb.

tl;dr; TSLA will ultimately be added to each index fund as a fixed number of shares and the share price is a non factor regarding the number of shares added. The share price will impact the final % of the index TSLA comprises by dollar value, but that is a separate detail.

High confidence facts:

• S&P 500 is a float weighted index
• The float market cap is IWF * total shares * stock price
• IWF (Investable Weight Factor) is trading_shares/ total_shares
• IWF is not changed continuously
  
• Percentage in the Index is based on float_cap/total_index_cap (including itself, which has a small impact on the math).

When dealing with inclusion and % of index, the key thing to remember is that that individual stock holdings are determined purely by math, they are not dictated by the committee. Tesla at 1.5% or 1.0% is based purely on the ratio of TSLA float cap to the entire index's float cap. Each index fund has the IWF, stock price, and share count needed to calculate the individual holdings they should have.

Starting with an easy to answer question:
As the stock price changes, the value percentage of a constituent in the index changes, so how/when do index funds internally adjust to match the target percentage?

Answer: Once included at the proper share level, there is no adjusting needed:

Imagine, for discussion, there is a stock that is 10% of the index:
A: IWF*SP*shares = 10
Everything else = 90
Index total value = 100, A is 10% of total

Now, that stock doubles
A: 20
Everything else: 90
Total fund: 110
Actual percentage of A = 20/110 = 18%
Should the fund sell 8% to get to 10? Buy 2% to get to 20?
Neither! The fund has exactly the position the stock should have. The amount of stock the fund should have is the stock's float adjusted cap/ total index cap. That is the 18.2% number. So the index funds are self adjusting (to stock price changes) without buying/ selling shares.

The difficult question: So what about price changes just before inclusion?

If index funds are told the stock will be 10% of the index based on week old price data, and they convert that to a dollar value, then, if the stock doubles in the interim, they will be 8% off of the correct value.Not good.

However, if they take the % at time of the freeze (which is just the market cap relative to the full index) and convert that to shares based on that index's total value, then, as long as they acquire that number of shares, they end up with the correct percentage of the stock.
This means a rising stock price requires more spending by the funds which follows as the stock has a larger market cap which corresponds to a large index weight. It also means they sell more of the other index constituents to purchase the new stock (total fund value is a constant).

Any staggering they do to achieve the final position is beyond me. Regardless, the ultimate number of shares remains the same and, if the doubled price holds, the percentage of the stock by value will be 18.2% . A spike and pull back impacts the funds profits because more stocks had to be sold to acquire the new one, then the new one lost value, reducing the fund's value. So the # of shares in the new position remains the same, but the end value is less (both for the stock and the index). Same thing as a trading account when you sell one stock to buy another only to have the new purchase drop.

Another way to view this:
Ignore the float weighting for the moment. The index is cap weighted, so the dollar amount of a stock in the index is proportional to its market cap. The total value of all stocks is the index value. So:
value_of_stock_in_index = market_cap_of_stock * value_of_index / total_market_cap_value_of_constituents

value_of_index / total_market_cap_value_of_constituents is a constant (in the short term), let's call it 'a'
value_of_stock_in_index = a * market_cap_of_stock

In other words, the index holds a fixed percentage of each company in the index (and the same percentage of each).
But stock is traded in shares, so how much of each company?
Replace market_cap_of_stock with its formula:
value_of_stock_in_index = a * (total_number_of_shares * share_price)

total_number_of_shares is a constant (unique per stock), call it 'b(x)'
value_of_stock_in_index = a*b(x)* share_price

So the index holds a*b(x) shares of each stock to stay in balance and the share price and value track each other. IWF updates handle when the number of shares change.

You lost me at Mongo going out on a limb, but your post sounded expert.

Today’s conversation:

Me: Mom, the stock is over $600 now.
Mom: Yesterday we had bacon for breakfast.
Me: You said the SP would hit $900 before the end of the year.
Mom: Have you seen The Masked Dancer?
Me: No. The year’s almost over, Mom. I don’t think the SP is going to hit your whispers number.
Mom: How much are you worth now?
Me: Lots, but that’s besides the point.
Mom: I can’t even remember what day of the week it is most of the time, but let’s revisit this on New Years. I’m out of toothpaste and Kleenex.

 

[Chunky Jr.]

I think a major value in FSD is when it is legal for your own car to drive itself. Feeling sleepy on a road trip? Take a nap while AI drives for you. Bored on a long drive? Watch a movie while AI drives. Had a couple drinks? Let AI be your designated driver.

I'm skeptical that a full robotaxi service will happen within the next 3 or 4 years. At least one more year for the technology to be robust enough, another year or so of regulators approving it, and at least another year before people beyond earlier adopters and enthusiasts feel comfortable having AI drive them somewhere.

The ability for your own car to legally drive itself is a $1T opportunity IMHO.

 

[UncaNed]

Random PSA suggestion:
For security reasons, why not periodically screenshot your taxed, Roth, and "ALL ACCOUNTS" in both your broker's web app and on their website (6 screenshots in all) in case their whole database ever got irrevocably ransomwared, hacked and trashed.

For those with huge accounts, consider splitting some into a different brokerage also for security reasons, giving you a chance to A/B test different strategies in different brokerage accounts. I believe the brokerages themselves have FDIC insurance like a bank against uninvested cash in your account and that might effectively double the coverage by adding a second FDIC minimum via the other institution.

 

[S3XY]

*Ahem* O/T, but there was talk, some ages ago about a TMC Meetup in Iceland when the SP hit $420.69... PRE-SPLIT. I guess that means we'll all need to make some 7 trips there now, which is fine by me

We sort of lost our hostess.

 

[CLK350]

Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable

Just look at the future models out there...if the execution carries along as planned...its a multi-trillion dollar company. Not financial advice of course. Buy and HODL forever

John Maynard Keynes didn't say “the markets can remain irrational longer than you can keep making profits.”

 

[KMCC]

We sort of lost our hostess.

I got it.....

Someone ask her back just to organize the TMC cruise to Iceland!!

Everyone could stay at her house!!l

 

[Knightshade]

I think a major value in FSD is when it is legal for your own car to drive itself.

It's legal right now in a number of US states.

Just nobody sells such a car with that ability enabled yet.

I'm skeptical that a full robotaxi service will happen within the next 3 or 4 years. At least one more year for the technology to be robust enough, another year or so of regulators approving it.

Again this "regulators" thing is 100% a red herring.

If any company had L5 FSD working safely today they could deploy it today in a number of US states.

Nobody has, because nobody has such a working system yet.

Waymo has a working, open to the public, L4 robotaxi working- but only in one tiny geofenced area in AZ.

Tesla is working on a much much much broader and more scalable solution, but it's still at L2 today (even the posted beta videos).

If Tesla gets to where they believe it's safe for RT use they could turn that on immediately with no waiting for regulators in all those states it's already legal to do so.


In fact doing so would be an awesome way to collect added evidence how safe it is, and pressure the remaining states to also permit it.

 

[Congo Line]

As always, there are those that think Tesla is overvalued and cannot fathom the recent price appreciation. As a Tesla Bull, I'm trying to better understand why the recent price appreciation has been so spectacular. I realize that the S and P 500 announcement has a lot to do with it, but if that were the main factor I would think the price will eventually fall or taper out about this level based on fundamentals. BUT, do you guys think the FSD beta release is also a significant factor? Are market participants now pricing in that Tesla will solve autonomy in the next 1-2 years? Because to me, that means the stock could still rise much further and be sustained. The FSD videos on Youtube are pretty impressive, but is it being perceived as a high probability outcome? Is it already Game, Set, Match like Elon has said and is thIs a sign that large market players have done the research and agree with him?

If we agree that Tesla will solve autonomy in the next year or two, isn't it a trillion dollar company?

Although I think the markets and most analysts are still asleep with regard to recent FSD improvements, I have noticed that there have been a lot more views of the YouTube FSD videos compared to when the beta program first rolled out. However, personally I suspect those are individual retail investors.

 

[ninpb]

That story floating recently... Dealerships are paying GM to not have to sell Cadillac EV. Up to a $$$ million per dealer in some cases. Now there's some EV cashflow!

Sounds like the opposite of carbon credit but it will be a good revenue for GM according to analysts.

 

[TheTalkingMule]

Yet another +5% day on below average volume. Amazing.

 

[JRP3]

Random PSA suggestion:
For security reasons, why not periodically screenshot your taxed, Roth, and "ALL ACCOUNTS" in both your broker's web app and on their website (6 screenshots in all) in case their whole database ever got irrevocably ransomwared, hacked and trashed.

For those with huge accounts, consider splitting some into a different brokerage also for security reasons, giving you a chance to A/B test different strategies in different brokerage accounts. I believe the brokerages themselves have FDIC insurance like a bank against uninvested cash in your account and that might effectively double the coverage by adding a second FDIC minimum via the other institution.

You should also be able to download your current holdings from your broker's website. Export as .xls and/or PDF.

 

[BrownOuttaSpec]

As always, there are those that think Tesla is overvalued and cannot fathom the recent price appreciation. As a Tesla Bull, I'm trying to better understand why the recent price appreciation has been so spectacular. I realize that the S and P 500 announcement has a lot to do with it, but if that were the main factor I would think the price will eventually fall or taper out about this level based on fundamentals. BUT, do you guys think the FSD beta release is also a significant factor? Are market participants now pricing in that Tesla will solve autonomy in the next 1-2 years? Because to me, that means the stock could still rise much further and be sustained. The FSD videos on Youtube are pretty impressive, but is it being perceived as a high probability outcome? Is it already Game, Set, Match like Elon has said and is thIs a sign that large market players have done the research and agree with him?

If we agree that Tesla will solve autonomy in the next year or two, isn't it a trillion dollar company?

No one has a crystal ball or really knows what the market is thinking or knows but this was written in Jan 2020 and probably needs to be revised but gives a good idea of how Tesla could be valued (Pre-split prices, so divide everything by 5 to compare to today's prices):
Tesla Price Target: Tesla's Potential Trajectory During the Next Five Years

The 'funny' thing is that the graphic above doesn't (and most people) only see Tesla as a 'Car company' and doesn't account for the other parts such as battery, solar, tequila, and revenue streams such as Car Insurance, Energy Autobidder, premium connectivity, and supercharging.

Personally I see the EV Semi and Energy storage markets extremely undervalued. Both will require an extreme amount of batteries and I feel that Tesla is the only company in the world poised to pull it off. Throw in the 'X-factor of Tesla' of other 'start ups' they could incorporate in the next 5-10 years such as in-car App store, HVAC, Air Planes, and they are easily a multi-trillion dollar company.

 

[jbcarioca]

There are pretty major tailwinds for Tesla now, apart from S&P. Just list the positives and think not of anything intrinsic, just the emotional reaction on the part of the traditional investment community:
1. The EU new stated goal of 30 million BEV BY 2030;
2. Shanghai factory growing more quickly Han expected in both facilities and output;
3. Tesla buying battery cells form essentially everyone while building their own and still don't have enough;
4. TE utility, commercial and consumer sales growing more rapidly than expected with trajectory rising far faster than expected;
5. Brandenburg buildout faster than expected;
6. Texas faster than expected;
7. then there is all the car stuff, most of which is positive in sales, performance, market share and acceptance.
8. Profits.
9. Maybe even FSD, but that might be a mixed bag for them.
10. The Biden Administration, New Zealand dedication to only EV for government, plus dozens of other countries.
11. Who really knows how to do IT all as well as TSLA- nobody! VAG even publicly admits it!

The list goes on, but for quite a few in the investment community there are other psychological factors:
1. SpaceX human passengers, paying;
2. All those Falcon 9's, first stage landings (60 of them!);
3. Starlink;
4. Starship.

All that and more makes traditional analysts realize that the rules might not apply. That will make them really buy in to the 'story stock' approach which tends to make them ignore PE as well as all the common ratios and think about growth.

That, if true, really might not be good news for us because the chance of serious overreach becomes more nearly likely.
Just as 'Nifty 50', dot.com and 2008 the prime movers today are certainly not considering reality very well.
All the NASDAQ euphoria can explode very easily. Consider Nikola, NIO and many others. Think about biotech firms with zero actual products and unclear path to commercial viability (a long list)

OTOH, TSLA IS the real thing and has the track record now to support that.

The possibility that all this might portend unpleasant developments is why I'm 10% cash and cash equivalents right now. That is enough to live on if disaster strikes. Otherwise I remain totally committed to my favored investments because I fully expect them to thrive while many others crash and burn. Even in the Great Depression many people made huge profits, the only question was: who?

 

[S3XY]

No one has a crystal ball or really knows what the market is thinking or knows but this was written in Jan 2020 and probably needs to be revised but gives a good idea of how Tesla could be valued (Pre-split prices, so divide everything by 5 to compare to today's prices):
Tesla Price Target: Tesla's Potential Trajectory During the Next Five Years

The 'funny' thing is that the graphic above doesn't (and most people) only see Tesla as a 'Car company' and doesn't account for the other parts such as battery, solar, tequila, and revenue streams such as Car Insurance, Energy Autobidder, premium connectivity, and supercharging.

Personally I see the EV Semi and Energy storage markets extremely undervalued. Both will require an extreme amount of batteries and I feel that Tesla is the only company in the world poised to pull it off. Throw is the X-factor of Tesla of other 'start ups' they could incorporate in the next 5-10 years such as in-car App store, HVAC, Air Planes, and they are easily a multi-trillion dollar company.

It seemed like kind of a stretch at the time this came out but we're already fast approaching the High Functioning EV Company target.

 

[SOULPEDL]

Isn't it the other way around? GM paying Cadillac dealerships to close down? I think Rob Mauer said that something like 17% of them have taken up GMs offer.

By "floating around", I meant vaguely in my head. The whole thing didn't make sense, maybe I have it backwards.

 

[scaesare]

One can always just buy one of these to use Tesla non-superchargers for non-Teslas. About $160.

I urge folks to not do purchase these with the intent of taking advantage of Tesla's destination charging program, however.

 

[agastya]

Mongo going out a limb.

tl;dr; TSLA will ultimately be added to each index fund as a fixed number of shares and the share price is a non factor regarding the number of shares added. The share price will impact the final % of the index TSLA comprises by dollar value, but that is a separate detail.

High confidence facts:

• S&P 500 is a float weighted index
• The float market cap is IWF * total shares * stock price
• IWF (Investable Weight Factor) is trading_shares/ total_shares
• IWF is not changed continuously
  
• Percentage in the Index is based on float_cap/total_index_cap (including itself, which has a small impact on the math).

When dealing with inclusion and % of index, the key thing to remember is that that individual stock holdings are determined purely by math, they are not dictated by the committee. Tesla at 1.5% or 1.0% is based purely on the ratio of TSLA float cap to the entire index's float cap. Each index fund has the IWF, stock price, and share count needed to calculate the individual holdings they should have.

Starting with an easy to answer question:
As the stock price changes, the value percentage of a constituent in the index changes, so how/when do index funds internally adjust to match the target percentage?

Answer: Once included at the proper share level, there is no adjusting needed:

Imagine, for discussion, there is a stock that is 10% of the index:
A: IWF*SP*shares = 10
Everything else = 90
Index total value = 100, A is 10% of total

Now, that stock doubles
A: 20
Everything else: 90
Total fund: 110
Actual percentage of A = 20/110 = 18%
Should the fund sell 8% to get to 10? Buy 2% to get to 20?
Neither! The fund has exactly the position the stock should have. The amount of stock the fund should have is the stock's float adjusted cap/ total index cap. That is the 18.2% number. So the index funds are self adjusting (to stock price changes) without buying/ selling shares.

The difficult question: So what about price changes just before inclusion?

If index funds are told the stock will be 10% of the index based on week old price data, and they convert that to a dollar value, then, if the stock doubles in the interim, they will be 8% off of the correct value.Not good.

However, if they take the % at time of the freeze (which is just the market cap relative to the full index) and convert that to shares based on that index's total value, then, as long as they acquire that number of shares, they end up with the correct percentage of the stock.
This means a rising stock price requires more spending by the funds which follows as the stock has a larger market cap which corresponds to a large index weight. It also means they sell more of the other index constituents to purchase the new stock (total fund value is a constant).

Any staggering they do to achieve the final position is beyond me. Regardless, the ultimate number of shares remains the same and, if the doubled price holds, the percentage of the stock by value will be 18.2% . A spike and pull back impacts the funds profits because more stocks had to be sold to acquire the new one, then the new one lost value, reducing the fund's value. So the # of shares in the new position remains the same, but the end value is less (both for the stock and the index). Same thing as a trading account when you sell one stock to buy another only to have the new purchase drop.

Another way to view this:
Ignore the float weighting for the moment. The index is cap weighted, so the dollar amount of a stock in the index is proportional to its market cap. The total value of all stocks is the index value. So:
value_of_stock_in_index = market_cap_of_stock * value_of_index / total_market_cap_value_of_constituents

value_of_index / total_market_cap_value_of_constituents is a constant (in the short term), let's call it 'a'
value_of_stock_in_index = a * market_cap_of_stock

In other words, the index holds a fixed percentage of each company in the index (and the same percentage of each).
But stock is traded in shares, so how much of each company?
Replace market_cap_of_stock with its formula:
value_of_stock_in_index = a * (total_number_of_shares * share_price)

total_number_of_shares is a constant (unique per stock), call it 'b(x)'
value_of_stock_in_index = a*b(x)* share_price

So the index holds a*b(x) shares of each stock to stay in balance and the share price and value track each other. IWF updates handle when the number of shares change.

Wait, isnt this contradicting - being weighted by float and market price intrinsically means share count is a function of those two.

For example the change in AAPL holding by SPY keeps changing when the share price changes, which in turn changes the weighting in S&P500

Whereas look at GOOGL where price hasnt changed much - weightage remains around the same and the #of shares held isnt fluctuating wildly.

or BRKB - same share price: but weight has been reduced by .03% since other components have changed and hence # of shares held have been adjusted.

(caveat : not considering inflow of new funds into SPY - however, that shouldn't change weightage)

 

[wipster]

Well all...Be prepared for a drop because....Yahoo said so:



3 reasons Tesla isn’t our Company of the Year

View attachment 615326

What is their "Company of the Year?"

Etsy?

 

[jbcarioca]

By "floating around", I meant vaguely in my head. The whole thing didn't make sense, maybe I have it backwards.

GM has wanted to get rid of a good many poorly performing dealerships for decades, I recall consulting with them on on such effort for a new model lineup back a couple decades ago. That has always been fraught for them and for several OEMs, just about like Toyota trying to buy out independent US distributors after they were already billionaires. So, now that BEV adoption is a sure thing it's easier to bribe the bottom end into giving up before they try to cope with something they don't want to hear, but know si inevitable. Actually that is pretty smart for GM.