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

[saniflash]

I don't know what will happen to the stock price.

Things I know:

1) If I'm an index fund manager, and my most important KPI (the one that can get me fired if I'm much worse than the guy at the next fund) is TRACKING ERROR (NOT RETURN!!!1!!), (a) why would I run the risk of introducing the tracking error by buying early in the process? If I cannot get my demand filled during Fri Closing Cross (when all my peers buy), (b) I will buy on Mon (just as my peers will do). In the latter case, the tracking error will not have been my fault, and my peers at the other funds will show it as well. If I want to maximize the likelihood of keeping my job, I will clearly do (b)

2) There's clearly money to be made from this situation, and there's no free lunch on Wall St.
a) Instruments can be created out of thin air as long as they can be described in a contract (e.g. CDSs on MBSs 2007/2008). E.g. you can call Goldman and say "I want to have a cash-settled option so you pay out the difference for up to 5M shares between Fri's Closing Price and the actual moment I buy the shares". If you accept that the cost of the premium is less than the expected value (cost x probability) of a tracking error, you'll happily pay the premium.
b) Index funds manage trillions and are important customers of Goldman et al. While investment banks are savage sharks for sure I would not be surprised if they scratch their customers' backs from time to time and their traders already have accumulated a certain number of shares to be transferred to the indexers at a certain time at a certain price. Investment banks can hedge via buying options from some other institute.

On the one hand, the degree of freedom is so high, as is the space of possible actions, agreements and relationships between all the players. On the other hand, our transparency/our understanding of the industry is very low.

This means that it's extremely hard to predict any outcome.

The only prediction I confidently make is that in a couple of years' time, the company will most likely be worth more than today. Accordingly I'm positioned in 1/3 common stock and 2/3 ITM LEAPS.

And as I read this I come off as a really bad case of smartassness. While I just want to bring across the opposite point -- that I don't know anything.

And, finally, as I'm writing this, it seems that a buyer has finally shown up. LOL.

 

[Artful Dodger]

The inclusion spike can't already be behind us if the index funds haven't done any buying yet.

I don't get why some people continue to say this.

Pretty simple, really. About $234B of capital* flowed into TSLA between the S&P announcement (Nov 16) and the Close on the freeze date (Dec 9th).

Recent estimates are that about $80B in TSLA equity will need to be transfered to Index Funds. That's about 34% of the capital that's already moved.

So, do you think fewer than 1 out of 3 shares purchased over the past month will become available through the market for Index funds to buy?

TL;dr Yes, it's quite possible that there is enough liquidity in the system to avoid a large SP spike. That's likely what the S&P meant when they said this in their Nov 30 announcement:

"In its decision, S&P DJI considered the wide range of responses it received, as well as, among other factors, the expected liquidity of Tesla and the market’s ability to accommodate significant trading volumes on this date."​

*Note: yes, shares issued by Tesla on Dec 11 for the the $5B cap raise will be counted in TSLA weight for the S&P 500

 

[Prunesquallor]

FYI, Vanguard has an Extended Market Index fund that invests in all stocks that are NOT in the S&P. As of 30 Nov 2020, the number one holding was 9.6M shares of TSLA. On Friday, those shares will be magically transferred into Vanguard’s S&P500 Index fund at the ending day price. By Vanguard’s definition, any stock now in their 500 Index Fund, cannot be in their Extended Index Fund. No need to buy/sell anything on the open market (except a few for balancing). I would imagine that almost every large ETF or Mutual fund family has a similar situation. Unfortunately, this may reduce net buying significantly.

Applicable?

 

[Nurkbonis]

Link to those predictions?

I am in the same boat, can't wait till this is over.
Really excited about the final P & D report for Q4 and 2020, then the predictions of @theaccountant - that's where the real magic happens

 

[Nocturnal]

Applicable?

View attachment 618266

Great to see that confirmation. That scenario made zero sense to me. How can a fund screw over investors in that fund by taking on risk just to increase earnings in another fund? Seems like a breach of fiduciary responsibility.

 

[Oveeus]

So, I've been given some extra thought on recent news of solid state batteries, Tesla's structural batteries and everything that goes on, here is a note I came up with that I thought I'd share with the community.

Cybertruck's structural battery is just the first step.
We know that CT is incorporating a structural approach for batteries where the 4680 batteries just become a part of the structural integrity. I think this is just the first step. Where this design is going to shine is for Tesla Semi program.
I've always thought about why isn't Tesla incorporating their Semi's battery system into the trailer itself. And trailer can always be charging while being loaded/unloaded, providing minimal down time for the semi as they wait to be charged. And the answer has always come down to the fact that if we make the trailer too heavy, the possible load decreases, making it more expensive to run. But the trailer+truck itself is 35,000lbs worth of steel with a max. loaded weight at 80,000lbs. If Tesla can integrate batteries into forming the trailer bed itself, it could potentially create a trailer bed weighting not a whole lot more than 35,000lbs while retaining the same structural integrity to bear the 53,000lbs worth of load on top. This is further confirmed by Elon's comments on how he thinks about airplane design where the oil tank itself is just part of the structural integrity of the fuselage; allowing max amount of fuel loaded onto the plane while not planning for an extra part for fuel.

Solid state batteries are missing the point.
This week, we had news from Toyota that they plan to introduce an EV with solid-state batteries that's able to charge in 10min while providing decent amount of range. Similar approaches are shown by comments from QS technologies. But I think they are missing the point and put too much emphasis on EV and from a wrong POV. Tesla's battery formula program goes onto separating into 3 (or perhaps more) different type of formula depending on the need of each type of vehicle. This is not just for EV, but also the other battery programs that Tesla is currently running, namely the megapack designed for grid infrastructures. First on EV... Toyota and the others are still using the same mentality of ICE vehicles where people are used to "fill up" when they actually go into a gas station. However, as many of us with a Tesla or other EV knows, that's not the way we use EV. We charge at home when it's low and go out in the morning with a "full tank". And in long road trips or where the battery doesn't provide enough for us to get from point A to B, we charge just enough for us to get to the next charging point. This is similar to how we use cellphones. Even though we charge fully at night, if we know that given our usage, it's not going to last the day, we'd charge whenever there's a chance... just enough for us to keep going until we can fully charge it again. So, by focusing too much on charging speed, they actually forget that yes, fast charging is nice, but really what we need is many quick short burst of charges that can get us to the next point of charging. So, the need for extremely fast charging is not actually necessary. The focus should still be on the motor efficiency and longevity of the battery, which I think Tesla is right on track. Furthermore, it's always about economy of scale. The easier and more cost-efficient the manufacturing can be, whether it's the battery itself or the car as a whole, is what going to make a difference between becoming a giant in EV vs. a niche player.

 

[Todd Burch]

Hehe, MM's keep smackin' my hand. They be all

 

[dl003]

Great to see that confirmation. That scenario made zero sense to me. How can a fund screw over investors in that fund by taking on risk just to increase earnings in another fund? Seems like a breach of fiduciary responsibility.

I think the issue is liquidity. Many have argued for a mother of all squeeze to occur as not enough shares can be found to supply indexers. However, if big firms can bring their own shares to the pool and let market pricing sort it out, the above scenario won't happen. Additionally, assuming speculators can see this unfold in real time, they'll quickly figure out that they don't hold as much leverage as they thought they did, which means they'll more likely let go of their shares. The mere fact that this week has been uneventful so far must have spooked many into selling.

 

[mongo]

Pretty simple, really. About $234B of capital* flowed into TSLA between the S&P announcement (Nov 16) and the Close on the freeze date (Dec 9th).

I'm curious how you arrived at this number, could you kindly elaborate?

 

[LN1_Casey]

Oh, my goodness. I just was on another part of TMC, and legit, a guy tried to argue that Tesla was shutting down the S/X line to save money. Like, that is how they are trying to keep a profit margin going for this Quarter.

Wooooow.

 

[Curt Renz]

Electrek - hour ago: Tesla Model Y to help electrify two US police departments - Electrek

Back in July I emailed my county sheriff about the Bargersville Police Tesla. He replied, "Thanks Curt. Definitely on my radar. Hopefully we’ll acquire our first trial Tesla next year."

 

[jerry33]

OT rant: If I want to open or close the frunk, I'm already standing right there. I buy things that actually make my life better. Watching the hood rise or latch on it's own doesn't do that for me. It would be like buying a machine that would peel my banana for me before I ate it. How about a machine that would tie your shoes? I've never owned or understood electric can-openers either. I've used a few but I guess I don't get it. You have to realize I'm a guy who cuts and hauls his own firewood, does his own plumbing and electrical repairs, maintains and changes the tires on his motorcycles and cars and tunes and waxes his own skis. I wouldn't spend the time to install it if someone gave it to me (unless it was simply out of respect for the person who gifted it).

I believe the motive is to not dent the hood from manual operation. The newer electric can openers open the can while you do somthing else, so there's a time saving factor.

 

[Artful Dodger]

Have we all forgotten that $623 = $3115 pre split? If anyone told me $TSLA would be over $3k/share in March of this year, i would have probably bet you my next unborn

TSLA was your next unborn!

Ironic that it's exactly 9 months since the Mar 18 low to "D-day" on Dec 18, wot?

(I see what you did there)

Cheers!

 

[jhm]

Hey, where's that inclusion spike?

 

[wipster]

Electrek - hour ago: Tesla Model Y to help electrify two US police departments - Electrek

Back in July I emailed my county sheriff about the Bargersville Police Tesla. He replied, "Thanks Curt. Definitely on my radar. Hopefully we’ll acquire our first trial Tesla next year."

Spokane WA just authorized the purchase of 4 model Y's this week:
Spokane police to buy four electric Tesla Model Y 's under City Council's orders

 

[Runarbt]

Oh, my goodness. I just was on another part of TMC, and legit, a guy tried to argue that Tesla was shutting down the S/X line to save money. Like, that is how they are trying to keep a profit margin going for this Quarter.

Wooooow.

Where were you?! Do we have dungeons on Tmc???

 

[Johan]

In this scenario, the index fund will be trying to protect itself against the risk that at Friday's Closing Cross (which is the moment when they can buy at exactly the price that will keep them in line with the index) there will not actually be any shares to buy (because also at the closing cross a trade involves not only a buyer and but also a seller, so the volume is limited by the number of willing sellers).

It has already been established that the actual number of shares that a given index fund needs to buy is not that sensitive to the closing price, the risk is that this number of shares will be unavailable at the right time - and thus have to bought later at a potentially higher price.

So assume that to mitigate this risk the index fund has ahead of this event approached someone with this offer: "At the Closing Cross on Friday Dec. 18 we will buy this specific number - X - of Tesla shares from you at "market" price (i.e. the price at the Closing Cross)."

While very different in the details, this contract has some similarity to the index fund buying call options. For example, the further away in time they entered into the contract the more time value it would have due to (even) greater uncertainty of the stock price at expiration. While the buyer of the contract (the index fund) would reduce their risk, the seller of the contract would conversely increase their risk - specifically that at expiry the stock price would be lower than what they would need to deem the contract desirable.

The point is that this deal would only be acceptable to a (rational) supplier of shares for an additional payment, basically a premium to compensate them for the risk they take - similar to what a writer of a call option would expect.

And herein lies the rub: The index fund is supposed to acquire the shares at market price at the Closing Cross on Friday - but trying to do so via some pre-arranged contract will necessarily incur an extra cost to them - causing them to surely deviate from the Index, which was the very thing they were trying to avoid.

So I can only see such a pre-arranged transfer of shares to an index fund from someone who can accept to not get compensated for the risk that deal involves - maybe a situation where an index fund is owned by someone who also owns a different fund that could buy the shares ahead of time and could somehow accept to potentially lose out on the deal.

Exactly. Eloquently put. And your last few sentences accurately describe what I somewhat sloppyly was trying to get at when I said that there may be some actively managed fund "under the same umbrella" as the index fund in question that could do the "advance buying" on behalf of the index fund. And perhaps the fund doing the "pre-buying on behalf of the index fund" won't need a specific premium since a deal to be able to sell a large amount of shares at market price without having the price decline (normally sell pressure of a large number of shares will result in a dropping share price, all else being equal right?) is a sort of premium in itself?

 

[Mardak]

Have people looked into how ETFs actually work? What Is The Creation/Redemption Mechanism? and one application of that: How 'Heartbeat Trades' Are Boosting ETF Returns

 

[bkp_duke]

Oh, my goodness. I just was on another part of TMC, and legit, a guy tried to argue that Tesla was shutting down the S/X line to save money. Like, that is how they are trying to keep a profit margin going for this Quarter.

Wooooow.

Linky please, I don't mind going in and making a n00b feel like a n00b.

 

[LN1_Casey]

Where were you?! Do we have dungeons on Tmc???

Linky please, I don't mind going in and making a n00b feel like a n00b.

Cancel LR MS+ Order & Wait for Refresh?

Sub-forum of the Model S. So, kind of dungeon.