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?
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.
Not sure why you got downvoted. I think Tesla is a great company, but these valuations suggest they're going dominate transportation in a way no car manufacturer ever has.
Even if that is possible, which I'm not sure it is, the future is uncertain and the stock should have significant discount to reflect that.
>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?
Tesla lost far less during COVID and has shown to be resistant to even a crazy recession. They showed demand in the worst economic climate in 10+ years. They continue to show very good margin that nobody else can match with EVs, not even close.
They were break even in Q1, thanks to $400m of tax credits thanks to tax credits. They had to drop prices in Q2. Deliveries would be down YoY if it wasn't for China.
So what? All producers dropped prices and offered intensive. All companies try to sell/produce cars in China. Getting extra money for doing nothing is a negative now? Automotive only margins are still good and improving making their outlook for the second half of the year very good.
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.
I hate these 'R&D' budget argument. The can spend money but actually Tesla was first on all the important stuff. So have no idea why this all of a sudden is supposed to matter.
VW can barley get the basic software for their EV right at the moment. The CEO has admitted the lead Tesla has.
> planned to scale to 330000 EVs/y next year.
They have been missing their claimed targets many times before. Even if they manage that, only a tiny % of current cars sold are electric. Nobody believes Tesla will own 100% of the market.
If VW can actually make good on all those promesses, their stock will also go up.
But having the legacy and investment of massively depreciating ICE assets and not shown the ability to produce profits with EVs, they will need to execute to convince investors again.
It's a question of ressources. Just like it's hard to see Microsoft becoming irrelevant simply because they have so much cash that they can just keep trying.
What exactly was Tesla first on? They managed decent range but there EVs are simply not that difficult to build compared to ICEs. Software is big but they know they are behind they have the ressources, and the institutional commitment.
It's not that I think Tesla should have the same cats/validation ratio as VW. They are ahead after all. But it's very hard to see the extend of the discrepancy in validation as justified over the long run for me. And it's not like VW is ignoring adjacent markets, Moia is a reasonably successful pilot, etc...
> What exactly was Tesla first on? They managed decent range but there EVs are simply not that difficult to build compared to ICEs.
This myth simply does not hold up once you consider how pretty much all manufactures have run into massive problems with EV production and struggle to achieve margin.
If it was so easy as claimed, Tesla would not multiple of the highest selling EV all over the world.
Stocks are forward looking into the future. Making big profits now was not moving the stocks up, and now companies like Ford are not even making much profit anymore.
All that ICE infrastructure is massive bound up capital, that gone be a negative in a couple of years.
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.
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.
Lots of these products and services are nowhere near maturity, but the stock market is the sum of all future revenue streams weighted for probability. There is a potential future in which many of us get our energy from Tesla solar panels, that energy is stored in Tesla battery, we use that to power our autonomous Tesla cars that we either own or call to us with a ridesharing app, all while Tesla owned and operated trucks cross the nation autonomously. I don't think that is a particularly likely outcome, but there is a way for Tesla to get there while there is a near zero chance Volkswagen has a similar future.
The belief is that they will follow the same path for both ridesharing and trucking. If and when Autopilot is able to handle fully autonomous driving, Tesla will turn on that ability for owners to rent out their vehicle with Tesla taking a cut. Once that is successful, Tesla would then start to build its own internal fleet of autonomous vehicles to rent out and take all the revenue. This Tesla owned fleet would be the second stage because the vehicles themselves have a huge upfront costs. There is no point in incurring that upfront cost until the system has proven to be profitable among existing Tesla owners.
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.
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.
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.
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.
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.
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?
> 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].
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)
It basically comes down to math and taxes. Here's a vastly oversimplified scenario. Think about how you'd automate this. It ain't easy, is it?
Say you have, say, $10M under management, and the index is at $3,228.90, as it is right now according to Google. For simplicity, let's just make your share price equal to the exact value of the index (which it theoretically would be with no tracking error).
If you do the division, you find out that you have to allocate 3097.02994828 shares. If you're an ETF, that's literally impossible. If you're a mutual fund, you can do it, but it introduces some accounting overhead to deal with fractional shares and the like. That's okay for the mutual fund, but not great.
As far as taxes, one thing you want to do is hold at least some cash in your fund's portfolio so you don't have to be constantly buying and selling to fulfill purchases. Buying and selling generate capital gains, which you want to avoid as much as possible. However, this also introduces a bit of cash drag to the portfolio, which introduces some tracking error, so your share price will never exactly match the index. That right there blows our assumption that your share price is exactly the current value of the index.
Again, because of taxes, you don't want to just own the exact amount of stock necessary to allocate the number of shares you have outstanding. You probably want a bit of a buffer in terms of shares, so you can deal with orders by just twiddling bits internally in your accounting system rather than trying to go to the market and buy shares "just in time" (which is, of course, literally impossible, because the index moves in sub-millisecond time steps due to HFT).
So, given that you can't just own 1 share each of all 500 S&P 500 companies and say that's one share of your fund, what you do is go and pick a basket of stocks that, when added up together, correlate well to the index price. You can pick 10, 30, 50, 100, or whatever stocks, but you have to do a lot of number crunching to figure out precisely which stocks you want to include.
You want to do this tax-efficiently (remember what I said about avoiding buying and selling), and you also want as low of a tracking error as possible. This is a hard problem. Software can aid in solving this problem, but you need to pay people to make sure that your software does something sensible and isn't going to drown you in taxes.
And, then, there's the small matter of dividends, which complicates the hell out of things. If you don't own all 500 stocks and call that 1 share of your fund, your dividend will not match the sum of all the dividends of all 500 stocks in the index. That's fine, but you have to be aware of it, and you have to track dividend dates and amounts for however many stocks you hold.
Did that convince you that running an index fund isn't as simple as it sounds? :) That's why all funds, including index funds, have a nonzero expense ratio. Ya gotta pay for all this processing.
Oh, and I haven't even covered rebalancing and all the headaches that go with that at scale. And, because you're not Joe Six Pack investor, you're not trading on a $0 commission platform. You're paying for pro-level access to the market.
TL;DR: Owning all 500 stocks and bundling them as 1 share is pretty impractical. Since every trade you make on the open market costs money and possibly generates tax liability, you want to avoid that as much as possible and fulfill orders via moving bits around in your internal accounting systems. These systems are nontrivial.
>As far as taxes, one thing you want to do is hold at least some cash in your fund's portfolio so you don't have to be constantly buying and selling to fulfill purchases. Buying and selling generate capital gains, which you want to avoid as much as possible
Isn't this only applicable to mutual funds? AFAIK ETFs use some sort of loophole to avoid having to pay taxes.
ETFs are also theoretically more tax efficient for the end investor than mutual funds [0]. In practice, this may or may not matter. For example, Vanguard, being both the largest provider of mutual funds and the second largest provider of ETFs [1] is able to take advantage of both their scale, and a patented legal and accounting structure they use for their mutual funds to make this largely a difference without a distinction for them. Essentially, what they do is join the mutual fund to an ETF that then siphons off the tax liability through the loophole you mentioned [2]. The patent expires in 2023, so you'll probably see other companies doing this too, in 3 or 4 years, unless the IRS decides to do something about it.
> 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.
This doesn't pass the sniff test. Funds calling themselves "S&P 500" funds but not actually holding the 500 companies in the index seems like false advertising at best and downright fraud at worst. And rebalancing a fund's holdings should be an automated process whose cost should be covered by the funds fees.
They're called "S&P 500 index funds" because they closely track the S&P 500. If you look at literally any such fund, you will see they always have some nonzero tracking error. That's mathematically unavoidable. The task of the fund manager is to minimize that error, among other things.
I thought the whole point of "index funds" was that they are not "actively managed" by a human fund manager. They should just automatically track the index (with some minimal tracking error).
Mostly. They aren't "actively managed" in the same sense as non-index funds. Humans need to make some decisions about what to include, and monitor to make sure things like tracking error are low and tax efficiency is high. This is not trivial, which is why index funds were not just some obvious concept that has existed forever, and why, when John Bogle articulated the concept in the 70s at Vanguard, tens of them didn't just immediately pop up.
They're the type of object that looks very simple from the outside, and acts very simply, but, under the covers there's a good deal of stuff going on. It's kind of like how the steam engine is a very simple concept (in fact, the ancient Greeks invented a simple steam engine [0]), but, if you look at it at the very lowest level, you can't model how each individual water molecule contributes to the functioning of the whole.
That's not to say index funds have emergent behaviors. Rather that they work internally in ways you, the investor, don't need to care about, because they're designed to have that fairly predictable and simple external behavior.
Put another way: ever wonder why an index fund would need to have any management fee at all (i.e. why there's a nonzero expense ratio)? The reason is because they are managed, and you have to pay people to do that.
Speaking of not carrying the full boat of 500, [0] is a good explanation of some of the mechanics behind why you might want to do that, and what difficulties it introduces (warning: auto-playing video).
If you choose not to own all 500, that is going to introduce some tracking error. A casual search turned up [1], which, although old, has some interesting numbers on the tracking error, expense ratio, and alpha [2] of several funds. I found it interesting that some funds actually generated a small amount of alpha. I bet over time the mean alpha for a sampled-index strategy is 0 though, just by the law of large numbers.
[2]: Alpha, intuitively speaking, is basically the amount of excess return over and above what you'd get if you theoretically just owned the whole index with 0 transaction fees. Pretty much, it encapsulates "how much did this strategy beat the market by." Predictably, alpha values for these funds are small and close to zero. Most are negative, meaning you're going to lag the market. Unless you have enough money to use a direct indexing strategy, you basically have to live with that.
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.
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).
> 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.
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.
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.
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.
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.
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.
> 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.
Here's a couple links, one a paper from McGill tying green energy and political power, and an article from National Geographic saying "Two-thirds of young adults (aged 18 to 34) say they’re inclined to vote for a political candidate who supports cutting greenhouse gas emissions and increasing financial incentives for renewable energy".
Thank you the links. I will read them in more detail, but at first glance, they don't address what I am asking.
If you look at an EV versus ICE car in isolation, the EV is definitely greener. However, if we look at the whole system and process of electric energy production, gas production, battery production and disposal, etc., I have not seen analyses that compare which is actually greener. I would love to be pointed to this, as I have tried to find it! As far as I can tell from my searching, they are essentially overall the same, except that the effects are spread around in time and place.
Now, I can assume that there is a tacit argument that putting more electric vehicles on the road increases the demand for clean energy because electric vehicles tax electricity production heavier, which is not that green now. However, are electric cars really the primary driving factor for clean electricity production? Actual clean energy production is obviously extremely important.
Also, I don't understand how continually building more and more cars gets us to a cleaner future. I imagine whenever self-driving cars arrive, we'll all just be sitting in packed streets. That doesn't feel necessarily cleaner or futuristic.
Thanks for the link! That's the first time I've seen an analysis like that in terms of the time it takes for a crossover event. It'll take longer to read through their full report. Although, it does exclude the environmental impact of the battery disposal problem, at least in the summary article.
And yea, I'm not looking forward to the self-driving "utopia". I feel it's solving the wrong problems and will create wholly new problems.
I've previously heard Elon answer this question. The biggest blocker with reducing Carbon emissions was the whataboutism of consumer car use (i.e. decentralized carbon emissions). Migrating all consumer cars to electric gets rid of that whataboutism. Now we can focus on the real Carbon emitters:
1. There are few car manufacturers, there are many car users. Its easy to scrutinize and regulate car manufacturers through Carbon credits, or some future system so they offset /eliminate the Carbon emission. Similar efforts, like a Carbon tax on gasoline, were shot down previously (in general; there were some passed) for "penalizing consumers" (i.e. no longer an insurmountable issue because mass migration to electric cars are now seen as inevitable).
2. Electricity production is relatively consolidated (solar's decentralization is already a move toward "green energy" so I'll skip its impact). Given the consolidation of energy production, its again easy to use regulation or consumer bargaining power to sift production to "green energy".
In conclusion, while there is valid debate about "Are car factories and electricity production really carbon beneficial compared with ICE cars?", there is no debate that "having solved the decentralized carbon emissions problem (i.e. previously a technology limitation), the next step to improve centralized, large scale factories and electricity production is simple (i.e. an ROI calculation for those companies - e.g. given a factory is already in Texas and active during daylight hours, is it cheaper to produce cars using solar?)".
My mistake, I misunderstood your question, I was showing that there is more of a movement in general towards shifting to green energy. I'm not aware of any studies that show a comparison of emissions.
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.
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.
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.
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.
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.
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.
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.
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.
92 comments
[ 5.5 ms ] story [ 160 ms ] threadI imagine at some point it will drop back to reality, but not this year
Even if that is possible, which I'm not sure it is, the future is uncertain and the stock should have significant discount to reflect that.
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?
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.
VW can barley get the basic software for their EV right at the moment. The CEO has admitted the lead Tesla has.
> planned to scale to 330000 EVs/y next year.
They have been missing their claimed targets many times before. Even if they manage that, only a tiny % of current cars sold are electric. Nobody believes Tesla will own 100% of the market.
If VW can actually make good on all those promesses, their stock will also go up.
But having the legacy and investment of massively depreciating ICE assets and not shown the ability to produce profits with EVs, they will need to execute to convince investors again.
What exactly was Tesla first on? They managed decent range but there EVs are simply not that difficult to build compared to ICEs. Software is big but they know they are behind they have the ressources, and the institutional commitment.
It's not that I think Tesla should have the same cats/validation ratio as VW. They are ahead after all. But it's very hard to see the extend of the discrepancy in validation as justified over the long run for me. And it's not like VW is ignoring adjacent markets, Moia is a reasonably successful pilot, etc...
This myth simply does not hold up once you consider how pretty much all manufactures have run into massive problems with EV production and struggle to achieve margin.
If it was so easy as claimed, Tesla would not multiple of the highest selling EV all over the world.
All that ICE infrastructure is massive bound up capital, that gone be a negative in a couple of years.
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.
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.
Lots of these products and services are nowhere near maturity, but the stock market is the sum of all future revenue streams weighted for probability. There is a potential future in which many of us get our energy from Tesla solar panels, that energy is stored in Tesla battery, we use that to power our autonomous Tesla cars that we either own or call to us with a ridesharing app, all while Tesla owned and operated trucks cross the nation autonomously. I don't think that is a particularly likely outcome, but there is a way for Tesla to get there while there is a near zero chance Volkswagen has a similar future.
They've sold reasonable-sized power infrastructure to utilities in a few different places.
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.
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.
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?
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...
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)
Say you have, say, $10M under management, and the index is at $3,228.90, as it is right now according to Google. For simplicity, let's just make your share price equal to the exact value of the index (which it theoretically would be with no tracking error).
If you do the division, you find out that you have to allocate 3097.02994828 shares. If you're an ETF, that's literally impossible. If you're a mutual fund, you can do it, but it introduces some accounting overhead to deal with fractional shares and the like. That's okay for the mutual fund, but not great.
As far as taxes, one thing you want to do is hold at least some cash in your fund's portfolio so you don't have to be constantly buying and selling to fulfill purchases. Buying and selling generate capital gains, which you want to avoid as much as possible. However, this also introduces a bit of cash drag to the portfolio, which introduces some tracking error, so your share price will never exactly match the index. That right there blows our assumption that your share price is exactly the current value of the index.
Again, because of taxes, you don't want to just own the exact amount of stock necessary to allocate the number of shares you have outstanding. You probably want a bit of a buffer in terms of shares, so you can deal with orders by just twiddling bits internally in your accounting system rather than trying to go to the market and buy shares "just in time" (which is, of course, literally impossible, because the index moves in sub-millisecond time steps due to HFT).
So, given that you can't just own 1 share each of all 500 S&P 500 companies and say that's one share of your fund, what you do is go and pick a basket of stocks that, when added up together, correlate well to the index price. You can pick 10, 30, 50, 100, or whatever stocks, but you have to do a lot of number crunching to figure out precisely which stocks you want to include.
You want to do this tax-efficiently (remember what I said about avoiding buying and selling), and you also want as low of a tracking error as possible. This is a hard problem. Software can aid in solving this problem, but you need to pay people to make sure that your software does something sensible and isn't going to drown you in taxes.
And, then, there's the small matter of dividends, which complicates the hell out of things. If you don't own all 500 stocks and call that 1 share of your fund, your dividend will not match the sum of all the dividends of all 500 stocks in the index. That's fine, but you have to be aware of it, and you have to track dividend dates and amounts for however many stocks you hold.
Did that convince you that running an index fund isn't as simple as it sounds? :) That's why all funds, including index funds, have a nonzero expense ratio. Ya gotta pay for all this processing.
Oh, and I haven't even covered rebalancing and all the headaches that go with that at scale. And, because you're not Joe Six Pack investor, you're not trading on a $0 commission platform. You're paying for pro-level access to the market.
TL;DR: Owning all 500 stocks and bundling them as 1 share is pretty impractical. Since every trade you make on the open market costs money and possibly generates tax liability, you want to avoid that as much as possible and fulfill orders via moving bits around in your internal accounting systems. These systems are nontrivial.
Isn't this only applicable to mutual funds? AFAIK ETFs use some sort of loophole to avoid having to pay taxes.
ETFs are also theoretically more tax efficient for the end investor than mutual funds [0]. In practice, this may or may not matter. For example, Vanguard, being both the largest provider of mutual funds and the second largest provider of ETFs [1] is able to take advantage of both their scale, and a patented legal and accounting structure they use for their mutual funds to make this largely a difference without a distinction for them. Essentially, what they do is join the mutual fund to an ETF that then siphons off the tax liability through the loophole you mentioned [2]. The patent expires in 2023, so you'll probably see other companies doing this too, in 3 or 4 years, unless the IRS decides to do something about it.
[0]: https://www.fidelity.com/learning-center/investment-products...
[1]: https://en.wikipedia.org/wiki/The_Vanguard_Group
[2]: https://web.archive.org/web/20200713200218/https://www.bloom...
This doesn't pass the sniff test. Funds calling themselves "S&P 500" funds but not actually holding the 500 companies in the index seems like false advertising at best and downright fraud at worst. And rebalancing a fund's holdings should be an automated process whose cost should be covered by the funds fees.
They're the type of object that looks very simple from the outside, and acts very simply, but, under the covers there's a good deal of stuff going on. It's kind of like how the steam engine is a very simple concept (in fact, the ancient Greeks invented a simple steam engine [0]), but, if you look at it at the very lowest level, you can't model how each individual water molecule contributes to the functioning of the whole.
That's not to say index funds have emergent behaviors. Rather that they work internally in ways you, the investor, don't need to care about, because they're designed to have that fairly predictable and simple external behavior.
Put another way: ever wonder why an index fund would need to have any management fee at all (i.e. why there's a nonzero expense ratio)? The reason is because they are managed, and you have to pay people to do that.
---
[0]: https://en.wikipedia.org/wiki/Aeolipile
If you choose not to own all 500, that is going to introduce some tracking error. A casual search turned up [1], which, although old, has some interesting numbers on the tracking error, expense ratio, and alpha [2] of several funds. I found it interesting that some funds actually generated a small amount of alpha. I bet over time the mean alpha for a sampled-index strategy is 0 though, just by the law of large numbers.
---
[0]: https://www.etf.com/etf-education-center/etf-basics/understa...
[1]: https://seekingalpha.com/article/217707-keeping-track-of-the...
[2]: Alpha, intuitively speaking, is basically the amount of excess return over and above what you'd get if you theoretically just owned the whole index with 0 transaction fees. Pretty much, it encapsulates "how much did this strategy beat the market by." Predictably, alpha values for these funds are small and close to zero. Most are negative, meaning you're going to lag the market. Unless you have enough money to use a direct indexing strategy, you basically have to live with that.
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.
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.
Source: Sortable list last updated July 7: https://fknol.com/list/stock-list-sp-500-index.php
Tesla has only had 3 quarters in a row profitable. If their upcoming quarter turns a profit, that will make 4 consecutive quarters.
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.
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.
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.
https://www.sciencedirect.com/science/article/pii/S221462961...
https://www.nationalgeographic.com/environment/great-energy-...
If you look at an EV versus ICE car in isolation, the EV is definitely greener. However, if we look at the whole system and process of electric energy production, gas production, battery production and disposal, etc., I have not seen analyses that compare which is actually greener. I would love to be pointed to this, as I have tried to find it! As far as I can tell from my searching, they are essentially overall the same, except that the effects are spread around in time and place.
Now, I can assume that there is a tacit argument that putting more electric vehicles on the road increases the demand for clean energy because electric vehicles tax electricity production heavier, which is not that green now. However, are electric cars really the primary driving factor for clean electricity production? Actual clean energy production is obviously extremely important.
Also, I don't understand how continually building more and more cars gets us to a cleaner future. I imagine whenever self-driving cars arrive, we'll all just be sitting in packed streets. That doesn't feel necessarily cleaner or futuristic.
https://www.ucsusa.org/resources/cleaner-cars-cradle-grave
In summary, it takes about 18 months of driving before an the reduced gasoline emissions compensates for the increased manufacturing emissions.
> I imagine whenever self-driving cars arrive, we'll all just be sitting in packed streets.
Agreed. So many people think that self-driving cars are going to reduce congestion, an argument I don't buy. They'll make congestion much worse IMO.
And yea, I'm not looking forward to the self-driving "utopia". I feel it's solving the wrong problems and will create wholly new problems.
1. There are few car manufacturers, there are many car users. Its easy to scrutinize and regulate car manufacturers through Carbon credits, or some future system so they offset /eliminate the Carbon emission. Similar efforts, like a Carbon tax on gasoline, were shot down previously (in general; there were some passed) for "penalizing consumers" (i.e. no longer an insurmountable issue because mass migration to electric cars are now seen as inevitable).
2. Electricity production is relatively consolidated (solar's decentralization is already a move toward "green energy" so I'll skip its impact). Given the consolidation of energy production, its again easy to use regulation or consumer bargaining power to sift production to "green energy".
In conclusion, while there is valid debate about "Are car factories and electricity production really carbon beneficial compared with ICE cars?", there is no debate that "having solved the decentralized carbon emissions problem (i.e. previously a technology limitation), the next step to improve centralized, large scale factories and electricity production is simple (i.e. an ROI calculation for those companies - e.g. given a factory is already in Texas and active during daylight hours, is it cheaper to produce cars using solar?)".
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...
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.
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.