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

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Finally, as for impact to TSLA's share price, S&P Global themselves claim there are $11.2 Trillion indexed or benchmarked to the S&P 500 (link), with $4.6 Trillion of that directly indexed to it. Meaning when a company gets added, those $4.6 Trillion have to add that company in a rebalance, and another $6.6 Trillion will eventually. This settles the argument, in my mind anyway, of the magnitude of the situation.

Correction: $6.6T "benchmarked" to the S&P 500 just means their performance is compared to the S&P 500. They don't *have* to buy TSLA but it is likely many of them will because it will have considerable weight in the S&P 500 index.

Also, see my prior post (w/ 38 positive ratings) for additional TSLA re: S&P 500 info:

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

Note that TSLA could be added in between the committee's quarterly meetings.

O.T. re: ARKK. Recently I sold all the Vanguard index funds in my son's taxable account with the intention of replacing them with ARKK. Instead, I decided to buy each of the 30 constituent stocks (in addition to TSLA) since it will be more fun for him to learn about each one and watch them in the future. I had to create a custom spreadsheet to weight it correctly and then limit orders so it was quite a tedious exercise but fun anyways. I plan to check in once a quarter to rebalance as needed in case they replace any of the names.

 

[StealthP3D]

I live in the relatively affluent capital area of PA (relatively affluent compared to much of the state) and the nearest store in PA is 100 miles away. Tesla will not have substantial sales here until they change that.
Erie, PA's third largest city and (300 miles from here), has no store or service center.
Tesla needs to keep building.

This bodes VERY WELL for demand going forward! I assume there are plenty of under-served "pockets" of substantial population all over the nation.

Congrats to all TSLA longs! TSLA closed at the third highest level in the history of TSLA (and only 1.7% off it's all-time closing high). IMO, this bodes very well going forward. Looking for new all-time highs in the coming couple of weeks. I don't think it will be subtle so be careful to not get spit out early.

 

[Artful Dodger]

Do you think a $2B profit is possible in Q3? If Tesla delivers 150k to 160k cars, that is 60k to 70k more than in Q1 and Q2, which were/will be slightly positive or break even. At an ASP of 50k and a margin of 25% that is an extra profit of $750 to $875M. Even if the ASP is higher or there are extra production efficiencies I don’t see them go higher than a $1B profit. Where do you see the other $1B come from?

Even a $1B quarterly profit would be huge and cause another big perception shift on Wall Street.

Yeah, highly dependent upon the Valuation Allowance (VA), which was a reserve of deferred tax assets reported @ $1.95B in Jan 2020.

@The Accountant cited this thread from a well-respected twitter account saying that (providing Tesla is profitable in 2020 Q2), PWC auditors would likely sign off on Tesla claiming some or all of their VA beginning in 2020 Q3:

Got Bitcoin? @AV8Gear Jul 2
Replying to @ICannot_Enough

Great chart. Why do you see profit dropping in Q4?

James Stephenson @ICannot_Enough Jul 2

I'm expecting Tesla to take a one-time tax benefit of ~$1.5B in Q3 related to rollover tax losses from prior years that must be flowed through the P&L once the auditors can be convinced that Tesla will have sufficient taxable income to use them.​

Look for the "GAAP Net Income (Earnings)" line in this Chart ($2.376B predicted in 2020 Q3 including a one-time $1.5B VA):

So effectively, he is predicting a profit of $876M for Tesla in 2020 Q3 WITHOUT using any of the VA. Personally, I like the research by @FrankSG which showed other large companies like Amazon used their VA in increments over 2 years to steady their Income Statements following authorization to use the VA.

Cheers!

P.S. Based on his update above produced after Tesla's 2020 Q2 P&D Report, James Stephenson predicts a profit in 2020 Q2 of $97M which gets TSLA over the line to qualify for S&P 500 inclusion.

 

[StealthP3D]

very interesting post!

As to the four motors, he said they were the only one having independently driven motors that could steer and turn in different directions and could get itself out of a jackknife.

Perhaps Tesla can make FSD such that you don’t get into that situation in the first place.

The Tesla Semi will also have jack-knife control. Nikola was taking liberties there since the Tesla Semi isn't available yet. Trevor speaks as if his Semi exists but the Tesla Semi does not. When, in fact, the Tesla Semi is at a much higher stage of development.

It was also misleading in that jack-knife control does not involve turning any wheels in the opposite direction - it merely requires independent power/regen control of each motor. Yes, of course the Tesla Semi already has this while I'm pretty sure that Nikola still needs to create the control software.

 

[oldTAVguy]

Additional future Forbes headlines at:

https://twitter.com/enn_nafnlaus/status/1280963168827846659

 

[Artful Dodger]

A couple of Three questions:

1. If the S&P were to play hardball - how many quarters before TSLA ends up in the NDX "forcibly" ?

They own the NDX and can do whatever they like, there is no 'FORCE' which can compel them other than Market Forces. So the issue is, what is best for them? The gains they'll see by including a large, fast growing Company like Tesla are compelling.

2. Ive been accumulating in the 400's, and some in the 950's, and just added some more just now in $1370's. The goal is a long term hold so I guess it won't matter much, when the SP is $2k -$5k (here's hoping'), but would like to enter in as favourably as possible.

Buy the dips? It's free money on a day like today if you have dry powder and a sharp shooter's eye.

3. Would you be adding more on a day like today in the $1370's ?

See #2 above. Wait for the inevitable bear raids. They can't help themselves. SP already back up $65 over their 'bare bottom'.

Cheers!

 

[ZeApelido]

I saw that video. Burger joint. Burger King? And they made a commercial out of it.

I’m a little lost what your point is about moving vs 3D. My spouse sees and thinks in 3D, which was a huge advantage in their job before computer programs did 3D. I can’t do it without a lot of thinking and help. But that’s okay, I have other super powers.

Anyway, my car used to try and stop at two unrelated locations, having interpreted stop-sign-like signs as full-fledged stop signs. Car doesn’t do that anymore. One of the several updates took care of that.

Computers are stupid compared to humans' vision capabilities. One snapshot in time (even from 8 cameras) combined with deep learning can try to create a 3d environment, but moving in the estimated 3D space (eg video) will improve / validate object size / position.

 

[Captkerosene]

Wow! Aren't you a barrel of optimism today!

This is a really important issue for Tesla investors. I've spent a lot of time thinking about this for both Tesla as a whole and FSD/autonomy separately.

My conclusion is that Tesla will become a near monopoly. Especially in terms of industry profit.

Some things are "self correcting" and others are not. The NBA has a salary cap, if it didn't the league would be even more dominated by rich owners in big markets. Labor unions demand higher wages from the most profitable companies in an industry, thus keeping weaker competitors alive. On the other hand, cancer or drug addiction expand until the fuel runs out.

It's easy to think that the auto industry is one of those self-correcting industries because we've always had lots of different producers. But what we have now is simply the vestiges of what has taken place over the last century. We still have many newspapers but only as a reminder of a time gone by.

Economies of scale and the network effect dictate that the first mover in a new industry has a good chance of winning it all. Why did Amazon, Apple or Google win? They got there first and sucked all the air out of the room. There is no "self-correcting" force in those industries. Not until you become so big and so powerful that the govt has to step in.

An electric, connected and autonomous vehicle is as different to today's ICE vehicle as Twitter is to Life magazine. Macy's never had a chance against Amazon, Motorola against Apple or the Yellow pages against Google.

To those who say that the race has not been won yet I say twaddle! Tesla leads in every metric that matters: Sales, distribution, advertising, management, corporate culture, balance sheet, brand, production costs, pace of innovation, hardware, software, efficiency, product satisfaction, safety and design. (That was just off the top of my head so sorry if I left out a few.) So who is going to catch Tesla? The ones that could write the code can't make the cars and the ones that could make the cars can't write the code. (No way AMZN wants to be partners with the UAW either if you think some partnership might work.) Every day we get farther ahead.

So my prediction is that yes "There can be only one."

 

[Artful Dodger]

Jeez, 5% never hurt so much.

Yeah and +5% ($65/share) never felt so good while springing a Bear trap:

Recovered to above Monday's Close and higher in After-hrs session. Imma go with @Lycanthrope on this one: Friday @ ~$1,400 FTW.

Cheers!

 

[The Martian]

My retirement is up more than a Roadster today if the $1,432.26 aftermarket close holds up tomorrow... It is so tempting to pull the trigger on a reservation and forgo the CT since I don't really need all its extra features. However, why tie-up $50K when it can remain invested in TSLA over the next ~2 years until Roadsters are for sale?

I wonder if some hedge funds were large buyers today trying to get in front of the S&P 500 inclusion that will force all those index funds to buy at whatever price somebody will sell it to them?

S&P 500 Future TSLA Addition Analysis

There are actually 505 tickers in the S&P 500 right now.

My rough calculation is that if/when TSLA reaches $1,627 its market cap will exceed PG which is currently ranked #10 in the S&P 500 by market cap. When TSLA is added to S&P 500 it will also get added to the "S&P 500 Top 50" at the next annual reconstitution after the close of the third Friday in June 2021, using a reference date of the last business day of May 2021.

However, S&P 500 rules state that "Weighting. Each index is weighted by float-adjusted market capitalization."

TSLA: Shares Outstanding = 185.48M; Float = 147.62M; % Held by Insiders = 20.51%; % Held by Institutions = 57.93%.
Float-adjusted market capitalization = 147,620,000 x $1,371.58 = $202,472,000,000 ($202B). ("Float-adjusted" removes the shares held by insiders like Elon that are presumably mostly not for sale.)

According to S&P, Mean S&P 500 Float-adjusted Market Cap Weighted today is $53,391.96M x 505 Constituents = $26,962.94B. TSLA would be 0.75% of this, which is its float-adjusted market cap as of 7/6/20 close.

S&P also states there is over USD 4.6 trillion indexed to the S&P 500. $4,600B x 0.75% = $34.5B worth of TSLA stock the indexers will be forced to buy. At today's close, that represents 25,153,472 shares or 17% of the "float". Will that be enough to cause an extreme spike up in the price when TSLA is added? By contrast, today's volume was 20.5M and the average is 14.2M.

Perhaps there will be a huge spike if one can assume that volume will be 14M average plus an extra 25M spread over 5 trading days for ~19M total shares per day. If that drove the price up 10%/day (today it was +13.48%) it would total +61% in a week which is just insane (to $2,208 if TSLA were added today and it happened this week). Of course, I think baring an even worse "Black Swan" event, TSLA will be trading significantly higher when added to the S&P 500. That said, I am always VERY suspicious of a crazy run-up like what we enjoyed today. The market tends to over-react when panic selling AND buying. Remember February 4 followed by the 5th? I think the momentum algorithms all were triggered on the way up today. We shall see what they do tomorrow...

Still, I will go out on a limb and predict that TSLA will exceed $2,000/share within a week of being added to the S&P 500 on 9/28/2020. Remember it will be shortly after "Tesla Battery Day" on Tuesday, 9/15/2020. That scheduling on the part of Elon is pure genius since it will drive up the price the week before the S&P 500 indices will HAVE to buy shares. Do I get to revise my prediction upwards to $2,500?

Everyone, please stay safe so we will all be around to see what happens!

PS. The most recent quarterly rebalancing of S&P 500 was announced on the 4th Monday of June (22). Tyler Tech, Bio-Rad Labs, and Teledyne Technologies replaced Harley-Davidson, Nordstrom (duh), and Alliance Data Systems. I expect TSLA will be added on September 28, 2020.

"Announcements

Announcements of additions and deletions for the S&P 500, S&P MidCap 400, and S&P SmallCap 600 are made at 05:15 PM Eastern Time. Press releases are posted on our Web site, www.spdji.com, and are released to major news services."​

ref: https://www.spglobal.com/spdji/en/d...odology-sp-us-indices.pdf?force_download=true

@engle Great post. I'm wondering the timing of the inclusion. Why are you predicting 9/28/2020 inclusion date? I heard from a few people that the inclusion normally happens about 2 weeks after ER and 10Q release. That puts the timing around middle of the August. Happy to hear your reason.

 

[CyberDutchie]

Tesla also has 4 independent motors that can go forward and backward also (tank turn in place). Elon mentioned jack knife prevention at the reveal.

Nikola, copy cat

 

[lafrisbee]

o

very interesting post!

As to the four motors, he said they were the only one having independently driven motors that could steer and turn in different directions and could get itself out of a jackknife.

Perhaps Tesla can make FSD such that you don’t get into that situation in the first place.

One of my two Auburn vs Alabama jokes.
While at Auburn I attended the Alabama Game in Tuscaloosa. After peeing I zipped up my pants and started back out to the game. An snobby Alabama fan looked at me and said, At THE University of Alabama they teach us to wash our hands after visiting the restroom.
I told him, "At Auburn they teach us not to piss on our hand."

 

[willow_hiller]

It's always great to see Tesla coverage in traditional media, but I'm almost always left disappointed.

PBS Newshour did a ~7 minute segment on lithium ion batteries and electric vehicles that features Tesla prominently. Hyperlinking the timestamped clip here because the TMC embed function doesn't pick up timestamps. Starts at about 34:25 if that timestamp fails.

Lots of great shots of Tesla promotional material mixed in, but then they go and say things like "electric vehicles... so far they have not surpassed internal combustion cars and trucks on cost and performance" and "unlike lead acid batteries, there is no practical way to recycle those made of lithium."

But all and all, the segment did strike a positive tone for the future of electric vehicles. They also revealed that they shot the segment back in February. I wonder why they decided to release it today, 5 months later.

 

[Prunesquallor]

o

One of my two Auburn vs Alabama jokes.
While at Auburn I attended the Alabama Game in Tuscaloosa. After peeing I zipped up my pants and started back out to the game. An snobby Alabama fan looked at me and said, At THE University of Alabama they teach us to wash our hands after visiting the restroom.
I told him, "At Auburn they teach us not to piss on our hand."

Pretty good. Let’s hear the other one.

 

[Artful Dodger]

After-action Report: Wed, Jul 08, 2020: (Full-Day's Trading)

Headline: "Bear raid for a Century; Loses a Tooth"

Traded: $22,407,382,120.58 ($22.41 B)
Volume: 16,353,769
VWAP: $1,370.17

Closing SP / VWAP: 99.68%
(TSLA closed BELOW today's Avg SP)
Mkt Cap: TSLA / TM = $253.337B / $175.041B = 144.73%​

'Short' Report:

FINRA Short/Total Volume = 58.9% (53rd Percentile rank Shorting)
FINRA Volume / Total NASDAQ Vol = 47.3% (47th Percentile rank FINRA Reporting)
FINRA Short Exempt Volume was 1.48% of Short Volume (54th Percentile rank)​

Comment: "Bears move SP $100 Intraday; Up after the Close"

View all Lodger's After-Action Reports

Cheers!

 

[lafrisbee]

Pretty good. Let’s hear the other one.

The same week end I was there I was going to have a major test when I got back to Auburn. I went up Friday, the game was Saturday. I figured I'd go to the Library and study for awhile (and perhaps pick up a coed, easy peasy). So I'm walking onto the campus wearing my Auburn Shirt, and I ask a guy, "Where's the Library at?"
He looks down his nose at me and my shirt and proclaims, "Here at The University no one ever ends a sentence with a preposition!"
So, now I feel all humbled, I take my hat off, and re-ask him, "Where's the library at, asshole?"

 

[Jack6591]

o

One of my two Auburn vs Alabama jokes.
While at Auburn I attended the Alabama Game in Tuscaloosa. After peeing I zipped up my pants and started back out to the game. An snobby Alabama fan looked at me and said, At THE University of Alabama they teach us to wash our hands after visiting the restroom.
I told him, "At Auburn they teach us not to piss on our hand."

I’m from Tuscaloosa, that’s hands — plural.

 

[PV4EV]

Additional future Forbes headlines at:

https://twitter.com/enn_nafnlaus/status/1280963168827846659

Its after hours, so here's some more future headlines to be worried about, in the same vein ;-)

.

 

[obie_fl]

So thanks to Karen exacerbating my fear of seagulls (see her tweet) I won't be able to sleep at night.

 

[Unpilot]

Its after hours, so here's some more future headlines to be worried about, in the same vein ;-)

View attachment 562232


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Never knew there was so much potential downside!

That is what I get for living in this TMC echo chamber.

Better sell tomorrow.


Plus service issues of course