Inclusion in the S&P doesn’t always indicate a big upside. I recently heard a podcast that suggested the opposite. If TSLA’s rise was based on such speculation, it deserves to fall.
Tesla sells globally, literally operates the largest car charging network in the world, they have stores and service centers all over the globe. They the major players in EV in all major EV markets, US, Europe, China.
There is absolutely no reason to exclude them based on your criteria.
And also, there is no evidence that these stock prices changes are related to S&P 500 at all. It doesn't really matter for Tesla if they are in the S&P 500.
Edit:
What the hell is it with downvoting? Tesla is a global 24.58 billion USD revenue company. There is LITERALLY no indication in the S&P guidelines that Tesla doesn't fulfill some requirement. That's a simple fact no matter if you like Tesla or not.
Again, I couldn't care less if Tesla is in the S&P500 or not, but there is no series argument against it.
Based on some metrics. In terms of how much travel it allows, how fast it charges and so on and so on. Call it the best, the most impressive or whatever you like. Clearly they are a major global player and that was may point.
In a more mature EV market like Norway where there's actual competition and consumer choice, Tesla isn't doing so hot. From the article:
Audi e-tron - 755
Mercedes-Benz EQC - 595
Polestar 2 - 504 (according to separate source)
Volkswagen e-Golf - N/A (511 total with ICE; mostly BEV)
Hyundai Kona Electric - N/A (413 total with ICE; mostly BEV)
MG ZS EV - 281
Nissan LEAF - 270
Tesla Model 3 - 264 (total Tesla brand: 348)
Renault ZOE - 221
BMW i3 - 152
That's about a 7% market share (edit: New car sales in Norway, August, 2020) for Model 3, 9% for all Tesla models combined.
If the VW group is already outselling Tesla in Norway 5 to 1 just in the BEV category, how can Tesla's market cap be 4 times higher than VW's? It fundamentally doesn't make sense.
New BEV car sales January to August 2020 in Germany:
Tesla: 10.6%
VW Group: 35.3%
Tesla had a fantastic first mover advantage, they're not making bad cars, but they're not special anymore. And in the real world, with competition, they're simply not stacking up very well. The trend is pretty clear to me. The stock market obviously disagrees, though.
Tesla is 28% full EV market and if you include Plug-in hybrids (you shouldn't) its 20% of the global market in the first half of 2020 and they have been improving their global market share consistently over the last couple years. But don't let real evidence stop you form selecting specific data samples that prove your point you want to make.
No company in its right mind could hold 30% of the total car market, but what is actually surprising is that unlike many analysis's predicted, their global market share has been going up. Maybe the next round of Tesla killer is finally gone do something.
You are comparing Tesla to the largest auto maker in its home market during a global pandemic where Tesla has to export their car from California (yes they are insane enough to build cars in California) and they have to pay tariffs.
Tesla is building a gigantic factory in the middle of Europe until then Tesla will not have the market leading position in Europe while all European companies dumb their vehicles in Europe first. I still expect Tesla to big a significant junk of the European market going forward.
If anything, it's slightly generous to Tesla, as Norway's ASP for cars is very high. Across Europe, they took about 8% of the market in the first half, down from 18% last year.
I believe Tesla is facing real competition in Europe now, and it's a lot of fun to watch versus the (not undeserved) US Tesla monoculture.
But you can't use Model 3 sales in Q2 or Q3 (as of yet) to show how well or poorly Tesla is doing. They batch produce their EU cars, and the shutdown meant they essentially skipped Model 3 deliveries in Q2, and Q3 is only beginning to spool up.
It's possible the Model 3 will lose its EU crown to the ID.3, but sales will once more be strong.
"When considering the eligibility of a new addition, the committee assesses the company's merit using eight primary criteria: market capitalization, liquidity, domicile, public float, Global Industry Classification Standard and representation of the industries in the economy of the United States, financial viability, length of time publicly traded, and stock exchange."
I guess there's still some "active" even in "passive" investing; it's just the market index managers making the determinations rather than a fund manager.
"Going forward, eligible companies need to have at least 5% of voting rights held by the public. Companies with multiple share classes already in one of the indices will have until September 2022 to change their structures or face removal." ( https://www.dividend.com/news/2017/11/03/companies-multiple-... ). Same link as before.
Do I not understand what "voting rights" means in this context? Doesn't this leave the door open for a CEO to retain 95% of voting stock, when all they need to maintain control is 50% + 1 share?
I suppose you could look at it that way, although this case it’s the market that made the decision (s&p 500) which then trickled down to the index. You could use an index like CRSP US Total Market which didn’t have this issue. The index reflects reality, not so much impacted it
The S&P 500 isn't "the market"; it's an index. The actual market is very clearly arguing for the inclusion of Tesla given how it's valued so highly over the vast majority of the stock that the index managers have included in the S&P 500. The S&P 500 purports to be representative of the 500 largest public US corporations, and by excluding Tesla they are absolutely failing to do so. When I buy A&P 500 tracking index funds I am not expecting that the index managers themselves are arbitrarily excluding companies that meet the qualifications.
From the S&P's own literature:
> To be eligible for S&P 500
index inclusion, a company should be a U.S. company,
have a market capitalization of at least USD 8.2 billion,
be highly liquid, have a public float of at least 50% of
its shares outstanding, and its most recent quarter’s
earnings and the sum of its trailing four consecutive
quarters’ earnings must be positive.
Tesla meets all of these qualifications as near as I can tell. It blows the market cap requirement out of the water and has been profitable for the trailing 4 consecutive quarters.
Maybe this will be the push for Tesla to fix it then.
In the mean time, I would love the option of an index that is literally just "the largest companies", without all these exclusion criteria. I wonder how it would fare against indexes with lots of exclusion criteria.
Note that indices differ in this regard, the FTSE100 (350) for example is simply the 100 (resp. 350, the 250 being the set difference) largest listed by market cap (determined quarterly - or the bottom couple would be quite volatile).
"On July 31 [2017], S&P Dow Jones Indices, the outfit that oversees the S&P 500 and its constituency, announced that it would take steps to exclude companies with multiple share class structures. ... The move comes amid blowback from investors who have complained about company practices that are designed to keep majority, or total, voting control in the hands of its management and founders"
This is very interesting. However, it doesn't appear this rule is applied consistently as Facebook is in the S&P500 and is probably the most infamous example of a multi-class share structure.
> For existing constituents, the rule will apply with effect from September 2022, thus affording a five year grandfathering period to allow constituent companies to change their capital structure if they so wish.
From my reading, S&P has not yet announced a similar policy.
I mean, dividends no? I would wager that most people care more about investment income than voting to approve a board member they probably never heard of.
For the individual you are correct, which is why companies haven't had much trouble getting people to buy non-voting stock.
But for the system as a whole, it's pretty important that the shareholders have the ability to vote for board members who will protect their interests, even if the power doesn't get used very often. That's why the SP committee is pushing back against multiclass shares...if the company's management controls the voting shares then they control the board which is supposed to be overseeing them, removing even a vague threat of accountability in a system that's already far from perfect.
Facebook and Google have both bought tens of billions of dollars worth of their stock back which is effectively just dividends that are reinvested for you.
Define "ownshership." These are supposedly publicly-owned entities. What does that even mean if the public has no control or say in how the entity is managed?
Good hour-long interview on someone that was (at the time) on that committee:
> Today on the Rational Reminder Podcast we have joining us Dr. David Blitzer who is the Managing Director and Chairman of the S&P Dow Jones index committee. He has been there from the time when indexes were barely even being traded and the first time S&P Futures began trading, and since then, indexing has turned into the massive phenomenon we all know today. Indeed, S&P indexes were (and still is) at the center of this explosion. Today Dr. Blitzer talks to us about the early days of indexing and shares some of his ideas about why indexing became so popular. We also discuss the possible reasons why some people still choose actively managed funds and the effect that the abundance of research has had on their dwindling appeal. Ever wondered where the rapid growth in indexing will end up? What happens after indexing? Can indexing become too big? Be sure to join us for this masterclass on indexing!
> David M. Blitzer is the former chairman of S&P Dow Jones Indices, where he was head of the index committee that determines which stocks are added to the S&P 500 Index, the Dow Jones Industrial Average, and all other stock market indices calculated by the company.[1] He held overall responsibility for index security selection, as well as index analysis and management.[2]
That was the reason why it fell? In that case looks liem they made the right decision not to include it. Any stock that moves 20% on this kind of decision is fundamentally flawed.
TSLA shares fell back to levels not seen since August 17th, 3 entire weeks ago. In the meantime, the company confirmed that it sold $5Billion of additional shares into the market last week. It's not just the S&P news, IMO.
Disclaimer: I am short $TSLA since about 2 weeks ago, because I can't wrap my head around the valuation and near parabolic move short-term. I do think that they are more valuable than some other large automakers, but probably not more than all of them put together. :)
Etrade. It isn't even listed as a "hard to borrow" security (just confirmed that by entering a proto-order and confirming another security that is hard-to-borrow does give a warning at that point in the flow).
Per that, I'd imagine any brokerage would allow you to short them.
I've held the shares short for short enough time that I haven't gotten tagged with any charges yet to give you actuals. The interest is super-low in any case, so when you're shorting shares that have moved parabolically, you're probably not worried about whether the borrow is 1% or 4% per year (or at least I'm not).
> I do think that they are more valuable than some other large automakers, but probably not more than all of them put together. :)
The Enterprise Value of Tesla ($398B) is only slightly more than the Enterprise Value of Toyota ($337B). VW's is $224B. They have a valuation larger than any other automaker, but not even close to that of all put together.
EV = market cap + debt - free cash
Not including debt in a company's valuation is like saying that the valuation of my house is only $100K if I still have a $400K mortgage on my $500K house.
I almost pulled a short a few weeks ago but couldn't bite the bullet because the market is so damn irrational I wouldn't be surprised if TSLA was meme'd up to a trillion
Tend to stay away from anything that is "my cousins friend at work asked how to buy stocks because he wants to buy x"
I think they're a scientifically-based "story"/"brand" stock based on climate science and reticence to change from other car makers...but, tangentially, if we have a recent influx of wealthy liberal people who believe climate is a huge threat, doesn't it make sense that the objectively best BEV maker is going to get a ton of interest from these investors who haven't lost income and wealth due to COVID and are looking for future-proof assets?
Maybe $TSLA and the market at large wouldn't be doing so well if rich investors could still spend money on vacations, luxury events, concerts, travel, etc?
I feel so conflicted when I read posts that consider Tesla "the best". I did benchmarking on all automotive interiors, exteriors, and infotainment systems, and Tesla was Kia level.
The interiors and exteriors were actually bad. The infotainment system was buggy and cheap, but it was feature rich and fast. If it wasn't Tesla, people would hate it for not having buttons.
The reliability is notoriously bad too.
I don't see any genuine argument for "Best", they might have the hardest, lowest paid workers, or the only car you can natively play a 30 year old video game, but when comparing Tesla to Nissan or GM EVs, I don't see why you'd get a Tesla.
I daily drive (well, pre-COVID anyway) a Nissan LEAF. The interior on the LEAF (a $22K car to me) seemed at least as nice as the 3-5x as expensive Model S that colleagues own.
However, if they were the same price, I'd much, much rather have the Tesla. Nissan's battery tech [and capacity] is way worse than Tesla's.
Maybe it wasn’t meant that way, but it can certainly be read if one considers the “95%” as an exaggeration. That’s why I was trying to clarify if it was meant to be out of line with “cyclical manufacturing” or with “tech”
The idea that Tesla should have a “tech” multiple, which generally means 80% margins and high growth rates, is kinda scary, since they don’t have either. 80-95% drop would be reasonable if and when it loses its “story”.
But it can use its valuation to bring in capital to try and make the business into something else.
Tech companies can build something one time and sell it a million times. Tesla builds one car, one powerwall, one roof, and sells it one time. It is more akin to a manufacturer than a tech stock.
That’s a good distinction. Would that also imply APPL is not a traditional tech stock but more of a tech/consumer hardware stock? I haven’t looked yet but I’d be Cypriots how their valuation compares in that light
Apple is an interesting one. They definitely have a consumer hardware division, but there's also the app store where they take a big cut of everything sold through it. Other than reviewing apps, they built it once and get to reap profits off of it indefinitely. Same for music, tv, iCloud backups, etc.
Traditional manufacturer. Saying "we're a tech company over and over" isn't going to make the global ASP for cars double, and they would ultimately need both that, and grabbing an unrealistically large part of the market, to justify their current price.
(The solar business is even worse; that's basically a generic product and should be expected to have extremely low margins in the long term)
> Any stock that moves 20% on this kind of decision is fundamentally flawed.
When a stock join an index, all the index funds (which simply passively follow the index) have to purchase a proportionate amount of that Stock (and got rid of whatever stock was ejected). Sonic you think stock X will go into an index you know that there will soon be a brief surge in demand for shares of X. Why now own some so that when that surge happens you’ll make a quick profit? Oops, didn’t join, so now you probably want to get rid of thats tick you just held to flip.
I don’t think Tesla is a good investment but this particular and unusual case is not why.
Wouldn't any stock that was removed from the index fall 20% as indexers sold it? This is the power of Indexes, not the weakness of Tesla isn't it? (I am actually glad it didn't make it in as I think it's too volatile and also I want to buy some :) )
The vauation on this stock is still insane. They were valued 2x of Toyota and VW. Will they ever make as many cars or be as profitable as those companies?
Those companies dragged their feet for 20 years when we all knew the climate was changing drastically. Tesla is still the only top car company to take climate change as seriously as scientists say we need to (i.e. stop making ICEs now). That's why TSLA is valued so highly: there are incredibly important reasons that we need BEV that most governments haven't accepted yet.
Some people disliked Tesla's recent profitable quarters because they used green credits from Europe to make a fraction of their profit. Why is that a downside? Every industry has huge governmental incentives, that's nothing new.
The Europeans, who actually legislate based on science and reality, are supporting BEVs (Tesla) and taxing ICE makers who have no green options(Fiat-Chrysler), meanwhile the US has massive fossil fuel subsidies which help every ICE company. Isn't it rational for STEM-savvy investors to look at this massively misaligned governmental policy regime and predict future change based on sound science?
Tesla simply looked at the science and made a prediction on BEV demand, a prediction no other car company did (in fact, they fought to bury EV's internally in some cases), and now they're all behind on the future technology. Stock investors are tech-savvy, they want a technological car company; this is a "story" stock, plain and simple.
I agree that it's playing a bit into the valuation, but it seems to be momentum and cult of personality as well. Hard to justify a >1000 P/E just based upon environmental impact.
>Some people disliked Tesla's recent profitable quarters because they used green credits from Europe to make a fraction of their profit. Why is that a downside? Every industry has huge governmental incentives, that's nothing new.
It's not about "disliking" the profits. The incentives are good.
It's people saying, "Tesla is profitable!", when all of the tiny profits come from one time charges.
>The Europeans, who actually legislate based on science and reality, are supporting BEVs (Tesla)
Did you know Tesla sales are down over most of Europe, as the "ICE companies" put out competitive vehicles?
Tesla stock is more like a roulette table than an indicator for the company's performance.
Or like a coin machine where more people put in money because they see the other players continuously winning, resulting in mass FOMO driven investment similar to what happened with Cryptocurrencies.
I think enterprise value is a better metric of a company's value than market capitalization. Tesla's market capitalization is certainly speculative, but at it's current price it's enterprise value is roughly the same as Toyota's.
>but at it's current price it's enterprise value is roughly the same as Toyota's.
Even this is absurd, though.
Tesla has a couple US factories, one in China (practically owned by the CCP) and another under construction in Germany. They sell a few hundred thousand cars a year, and sales are relatively flat/slightly up y-o-y. They've never made a profit outside of selling credits, some of which have come from controversial schemes like their battery swap.
Meanwhile, Toyota has factories all around the world (20+ countries) and produces 10 million cars per year at a profit. It doesn't add up.
It's certainly speculative, but I don't think it's absurd.
Toyota's revenue is around $280 billion, while Tesla's is around $25 billion, so Tesla will need to grow by a factor of 11 to hit Toyota's revenue.
Other manufacturers also generate/sell credits, so it's not like Tesla is alone there. Tesla being able to expand in a segment where most manufacturers only build compliance cars to avoid fines speaks to how effective they are at building EVs compared to everyone else, which is expected because they're the only manufacturer designing EVs from the ground up.
The scale of Tesla's production could be another reason for their valuation. If they're hitting roughly a tenth of Toyota's revenue with 3 factories, all of which are incomplete, that could speak to how efficiently they're using capital. For comparison, Toyota has 50+ factories they own and another ~20 contract/licensed/joint factories.
Even approaching Q2 2019's production figures means Shanghai was able to take up most of the slack from Fremont sitting idle for ~1.5 months, and Shanghai only broke ground at the beginning of 2019.
Their production capacity by 2021 should be about double what it was when they sold a few hundred thousand cars in 2019. Production of the semi, cybertruck, expansion of the Shanghai factory, and completion of their factory in Germany should all increase production and revenue significantly.
The biggest question mark IMO is whether they can manufacturer their own battery cells. If they can pull that off, I don't see any technical hurdles to them approaching Toyota's $280 billion in revenue in the next 5-10 years.
Don't get me wrong, they're valuation is still very speculative, because they need to execute on these new factories/products/production lines, but like I said, I don't think their valuation is absurd.
I assume it is mostly just based on humans being emotional and insane, but perhaps some people imagine Tesla is going to have some big battery innovations announced soon and make a killing that way?
In no way shape or form are their “innovations” gonna be bigger than what Panasonic and other long term battery manufacturers are gonna come out with. Tesla seems to be designed to create hype around nothing - a few months ago it was how novel their heating was. All while covering up glaring quality issues with Model Y.
I advised my friends to buy the dip around Feb for ~350, but now is the best time to at least sell 75% of the stock and take home a cool profit on the backs of fanboys.
They're building a pretty serious battery production line in Fremont [1]. I don't think they would be doing this if it was just some incremental battery cell improvement. It seems likely they do have some new chemistry or process.
> long term battery manufacturers are gonna come out with.
Do you honestly believe that? Like how often do we need to see industries disrupted from outside. Tesla itself literally did this to the car industry, 'no way Tesla can innovate and beat GM'.
Panasonic and LG is focused on making deals with lots of people and leveraging their technology to make lots of money. They haven't fundamentally innovated on Lithium Ion in quite a long time. The are totally entrenched and will make slight incremental tweaks to their chemistry.
Tesla has been involved with battery technology for a long time and they know a huge amount about it. They basically wrote the book on how to do battery packs with Lithium Ion (people don't remember but putting together 1000s of cells back then was considered totally insane). The founders of half the battery startups once worked at Tesla.
They are also the largest consumers of lithium ion cells in the world by far and have more date about their performance then anybody else by far.
Tesla has multiple long term research agreements with some really good battery researchers, like Jeff Dahn and others. They have bought multiple companies that had interesting technology for battery or battery manufacturing. They have spent multiple 100M on this. They also have one or likely more pretty large pilot battery production lines.
They will release their own battery/battery manufacturing line and it will be ahead of what the state of the art is.
But I'm sure they spent all these many billions of $ and 5-10 years of research in order to do some news item twitter storm to booster their stock price in the short term. Does that honestly make sense to you as a strategy?
> a few months ago it was how novel their heating was
It is novel and its something that makes their cars more efficient. Its in every Model Y, you can open them up and see yourself if you don't believe that it exsits. And btw, the company that does the most teardowns (selling reports to the competition) confirmed that they had never seen a heat pump like that before.
Maybe, just maybe, Tesla is just doing good technology and there is not a actually a huge conspiracy.
That all said, I don't think you can value the stock based on them becoming a battery supplier or something stupid like that.
But Tesla does more than just cars. And their timing on the recent share issue seems to have been spot on; no one really flinches that much after a post IPO drop.
If short term fluctuations of less than 4 weeks are a bother (even in moderate amounts given the current overall market / economic instability), then it sounds more like day trading concerns.
Personally I'm withholding judgement until after battery day.
Their current price is silly. But will they _ever_ make more cars than the current incumbents?
Gimme odds and I'd place a bet - they dominate the top 2-3 growing niches in auto (Battery tech & recycling, software/experience, and EV mass production). As long as their sales are constrained more by production than demand, it's unclear where their ceiling is.
You also need to consider they may just sell inputs to their competitors. Toyota may sell 10x the cars, but if Toyota must rely on Tesla battery factories, then Tesla can just eat their margin: Toyota sales feed Tesla's bottom line.
> Toyota may sell 10x the cars, but if Toyota must rely on Tesla battery factories, then Tesla can just eat their margin: Toyota sales feed Tesla's bottom line.
That would assume that Tesla somehow had a lasting monopoly on lithium ion batteries, which are ultimately a pretty generic product. In practice, you'd expect margins on batteries to be very, very low in the long term.
Tesla has the lead on producing top notch batteries at very low prices (mainly through automation which also helps with scale). Their battery / motor / generator controllers also appear to be pretty good. And their reluctance motors.
Personally I think it is better to think of Tesla as a software company that makes hardware for their software to run on, rather than an automotive company. In that respect they are probably better compared to Apple than Toyota. A lot of their key USPs are a result of the software they create rather than the hardware.
Even if you assume tesla is only making cars (they're doing more than that), why is no one asking why existing car companies are making so little? Why is apple worth $2 trillion based on a phone, while car manufacturers making something even more valuable than a phone, are only ~25% of that combined (excluding Tesla)? It's because traditional car companies are terrible at capturing the value they create. They're wasting a ton of money on expensive ads competing with each other. They outsource their entire supply chain, giving profit away to suppliers. They have dealer networks they are beholden to which eats into their margins. They don't upsell high-margin software add-ons to existing customers. They innovate slowly and reluctantly. Companies that aren't good at turning a profit don't tend to be worth much.
When was the last time you saw a Tesla ad on TV? When was the last time you saw Toyota or Ford sell a $7,000 driver assist upgrade or a $2,000 speed upgrade (both delivered over-the-air and instantly)? When was the last time you saw a Tesla dealer and not a store where you just go buy a Tesla like an iPhone? Tesla has the chance to dominate the car the way Apple dominates the smartphone and capture an enormous amount of value in the process, way more than any traditional car company has been able to.
Apple should not be used as an example. They are a company that lives off Marketing and gets away with anti-consumer and anti-developer practices. They are somewhat unique in that sense.
It's better to compare an automotive giant with a different tech giant.
Or Tesla with another big brand/marketing car company like Audi, BMW.
Ok, let’s compare with Amazon then. They are also able to capture an enormous amount of value despite being in a very competitive industry (retail). They also are doing other things beyond retail (AWS).
It can be both a bubble and people can also be failing to make the right comparisons. Apple and Amazon have both been in bubble territory before. Eventually their valuations were justified.
>They outsource their entire supply chain, giving profit away to suppliers
I was under the impression they did this deliberately because it was a means to drive down supplier prices and alleviate liabilities (e.g., Visteon, Delphi)
Anything that should be in the index shouldn't be affected too much by being added to the index otherwise it was under / over valued in the first place.
Am I the only one that thinks this is fundamentally unfair? What's the point of having inclusion guidelines if you can just change them willy nilly to suit your own agenda?
We need a more algorithmic index, not one ruled by one central committee.
Wonder if there's an ETF that simply does market cap weighting and just picks top public companies by valuation.
It’s not about fair or unfair it’s about the marketing plans of a given index.
If you think a more algorithmic approach would be better you could start one — perhaps you could even get into yc with it, though historically the index publishers themselves don’t make a lot of money directly.
> What's the point of having inclusion guidelines if you can just change them willy nilly to suit your own agenda?
You said it yourself: they're guidelines. I'm glad there are humans in the loop to exercise judgement when the guidelines may be giving a funny results.
> We need a more algorithmic index, not one ruled by one central committee.
IIRC, there already are many "algorithmic indexes", but they're not the S&P500 and there's no reason for the S&P500 to be one.
You just happen to agree with this one, so you find reasons to justify it like "exercising judgement".
What if they exclude a company because of political ties to communist regimes? Or ESG concerns? To me neither of these is acceptable. I would be pretty annoyed if Exxon was excluded from SP500 because they contribute to Global Warming.
Go pick another index is not a defensible position when I'm criticizing the index's policies specifically. Yet to hear good reasons for why a committee "exercising judgement" is a good thing for the average investor.
I am reminded of Elon Musk's tweet [1] a mere three months ago, when the stock rose from an already hard to believe [2] $80 to an incredible $140 (adjusted for split):
Tesla stock price is too high imo
And yet people still piled onto this stock. As if they knew something Musk didn't.
I don’t think so. It was in the middle of one of Elon’s manic episodes where he was saying a bunch of things that he wanted to say even if they were self-damaging.
Which isn’t to say Tesla couldn’t eventually be worth whatever the market says (Tesla has managed to dodge some major problems like cheap oil, end of EV credits, a federal govt opposed to climate action, and COVID-19 and keep expanding... so the market is probably pricing in what that says about Tesla’s odds that they’re able to overcome such hurdles), but it probably is an accurate evaluation of what Musk thought at the time. Personally, I don’t invest in individual stocks as it’s too much of a gamble and it also can lead to extra paperwork or compromise of my professional standing. I suppose the market is seeing Tesla as an example of real growth in an overall market of decline in new automobile purchases, so maybe that’s it. The reach for yield. Still, seems crazy.
Yeah I'm not really sure what people are expecting out of Tesla. I do think the current investors are low information investors who don't understand what stocks are or how automotive works.
I think we are seeing the beginning of hyperinflation.
I think some of those investors exist for sure, but what do you mean by "understand what stocks are"? I'd venture to say that you'd be hard pressed to apply a definition that doesn't exclude most people.
> how automotive works
This is the crux of the matter here. Many believe that Tesla is a car company and should be treated as such. Investors (I do own Tesla but not a significant portion of my portfolio) such as myself view it as a growing energy company. The cars are just batteries with wheels. I'm looking at products like Autobidder [1] in assessing potential long-term growth. They can create software, unlike Duke Energy, AEP, Toyota, GM, etc. which means they can do things like deploy algorithms, solar roof panels, power walls, etc. to better allocate energy at better prices. Obviously that's speculation, but that's just what investing is.
I would also say I disagree that we are beginning to see hyperinflation. We're actually facing deflationary pressure due to demand for the dollar, but we do see run-ups in stock prices because investors are chasing yield, and without access to alternatives (for many like myself) like venture capital or investing in private companies (SpaceX) there isn't much left to do with your money except buy real estate and rent it out (risky and work) or just invest in equities.
I'd also add that although the US has been printing money, most other countries, especially western democracies, have faced serious problems as well and have also been printing money, and that interest on borrowed amounts isn't that much, though we should really be looking at more fiscally responsible behaviors. Good luck with that though. Democrats will spend money on social programs (even when it doesn't make sense) and Republicans will find ways to cut taxes and kick that can down the road too.
> This is the crux of the matter here. Many believe that Tesla is a car company and should be treated as such. Investors [...] such as myself view it as a growing energy company.
I think it would be fairer to characterize Tesla as a growning energy startup. I can see the potential, but potential has to be realized, and Tesla is not the only startup working with solar and batteries.
In any case, the $450bn valuation dwarfs not just every other car maker, but also every other energy company.
$450bn is the combined market value of Toyota, VW, and Exxon.
Sure. To that point I'd say that there are those such as myself that believe that Tesla will realize that potential, versus not realizing that potential.
Tesla has the potential to create an actual subscription services that people would pay for. Autopilot is $8,000 right now, but activate it now for 72 hours for $50? Maybe $100? Now you might be eating into airlines as well. No other car company that has tried subscription services has been met with fanfare. Tesla is the only one who can get away with it.
Little things like that make me say that it's a trillion dollar company, easily, once they start realizing that potential. But that's investing. We use numbers, our own intuition, and then make decisions! :)
> I think some of those investors exist for sure, but what do you mean by "understand what stocks are"?
There does seem to be a certain type of investor who believes that the only important thing about a stock is hype, and not whether it, could say, even theoretically ever make enough income to justify its valuation. Of course, this can be true in the short term.
> Investors (I do own Tesla but not a significant portion of my portfolio) such as myself view it as a growing energy company.
That would surely imply a _lower_ valuation? You wouldn't expect lasting high margins in that business, whereas it is at least _possible_ (if not common) in the auto industry.
> That would surely imply a _lower_ valuation? You wouldn't expect lasting high margins in that business, whereas it is at least _possible_ (if not common) in the auto industry.
I think that's one difference here. I do expect lasting high margins (car sales and services). I mentioned this in another comment, but being able to sell passes for autopilot trips for $100 or something are going to be very lucrative.
Think about something like the Tesla supercharger network. Ok now that Tesla is also an energy supplier and uses software to find good rates, stores energy in batteries, etc, they'll better be able to get the best price on energy. You can sell excess energy back into the grid via Tesla software with your solar roof, for example, or charge your Tesla even cheaper than competitors might using a traditional energy grid.
These are just possibilities, but I see the end result being an extremely profitable business with great margins. My only area of concern right now is that their auto service is abysmal. They charge a premium price for a car, but boy it's nowhere near the service you get with Mercedes or BMW. Lots of "well that's in-spec" types of comments from service teams. Lack of loaner cars at times, just all around not great service (though there are exceptions) that I've seen first-hand and anecdotally. Even the r/Tesla subreddit will tell you it's bad.
> Ok now that Tesla is also an energy supplier and uses software to find good rates, stores energy in batteries, etc, they'll better be able to get the best price on energy. You can sell excess energy back into the grid via Tesla software with your solar roof, for example
Okay, so assuming the grid will support this, one would expect other energy companies to buy solar power, from any domestic solar panels (this already happens in some markets). So why would one buy Tesla panels, which were tied to one buyer, who could use that tie-in to get lower prices (if that were legal; electricity markets are heavily regulated in most countries and I suspect this sort of tie-in would ultimately not be legal).
I can see two scenarios here (assuming a developed grid allowing this sort of feed-in). (a) Tesla panel owners can sell to any energy company, like anyone else. Tesla can thus sell their panels for the same as anyone else (ie, pretty low margins),but they have no advantage as an energy purchaser. (b) Tesla panels are tied to Tesla as an energy purchaser, whereas generic panel owners can sell to anyone. Tesla gets cheaper power, but their panels are now an inferior product and they must sell them at negative margins to get them on roofs.
Any cleverness about domestic grid pricing will likely have to be enabled by national grid controllers, and accessible to all energy companies. While I do think it will come, I would doubt that there's room for anyone to have a monopoly in most markets, and I think it may actually be a hard sell to consumers, because traditionally consumers _hate_ variable pricing, even if it's ultimately to their benefit, for psychological reasons.
RE the supercharger network, I suspect that this is at best a short-term advantage. It's already a tiny part of the high-speed charger infrastructure in many countries. It probably is a clear advantage for now in the US, but that shouldn't be expected to be a long-lasting situation.
> Any cleverness about domestic grid pricing will likely have to be enabled by national grid controllers, and accessible to all energy companies. While I do think it will come, I would doubt that there's room for anyone to have a monopoly in most markets, and I think it may actually be a hard sell to consumers, because traditionally consumers _hate_ variable pricing, even if it's ultimately to their benefit, for psychological reasons.
Using something like Powerwall means you can still have lower rates with variable pricing. When most are connected to the traditional energy grid running their AC units during the peak hours and getting charged peak rates, you can draw from Powerwall where you've stored energy either over time or potentially over night when rates are cheaper. Automatically. You can also eventually probably see real-time electric rates. With software, Telsa could potentially bid on electricity and find reduced rates for you. There's a lot of possibilities here.
Idk what the future will hold, but do I want to bet on Duke Energy and BMW or do I want to bet on Tesla? I'm probably betting on Tesla based on what I've seen as part of my portfolio.
Sure, but again Tesla doesn't have a monopoly on battery storage, and battery storage would be expected to become pretty low margin.
I would think that Tesla's best avenue for lasting high margins would actually be the cars; other companies have managed that before, especially in the luxury/semi-luxury market (BMW's margins are decent, say). But they'd really need to capture the whole high end market, if not more high end market than actually exists, to justify their prices.
Well, you don't need a monopoly on battery storage do you? Besides the fact that no other company has demonstrated the ability to actually install a battery system in the way that Tesla has, the monopoly comes with the total integration of the hardware, services, AND software to effectively allocate prices. I don't see any other company really competing in this space. Are there any that you can think of?
> But they'd really need to capture the whole high end market, if not more high end market than actually exists, to justify their prices.
Why? They can probably effectively sell Tesla Model 3 style sedans at BMW or better margins around $35,000. I don't think they need to capture the high-end market anymore than Apple does. Sure, insert famous person here uses an iPhone, but so do I and so does my grandma.
Because the people who 'understand how automotive works' have done such a fantastic job in the last 10 years. We should clearly listen to these people. Get your investment advice from Bob Lutz.
And btw, just because you have different opinion, calling everybody else essentially 'stupid' is not really a great argument.
That tweet was likely intentional foreshadowing of the coming split. He posted it at 8:11 and they announced the split on 8/11.
I have no basis for this suggestion, but I’ve actually been thinking lately that SoftBank and Musk coordinated the TSLA infinity squeeze that we’ve all been watching.
It’s a great way to make a massive investment in TSLA, at the price you were willing to pay anyway, while sending the stock through the roof so the company can take the needed liquidity from the market.
TSLA added one of SoftBank’s largest financiers to the board in late April.
I find the SoftBank action more credible (even convincing, given the other submissions in which it was discussed) than the split theory.
Because there is no rational way that a company with $27bn revenue rises from ~$130bn to ~$450bn in market cap in three months. I've posted in another thread how VW builds 11 million cars each year, that's 1 out of 8 cars globally, at immense profit, and is valued at €80bn.
In any case, if the cause for the tweet was solely that the stock price was too high, well -- it was $700 back then, so I guess we'll see another split real soon now again.
Have you read about how your example, VW, saw a massive increase in market cap In a similar way in the past? It’s a way that was easily repeatable with enough capital and some ability to influence the public with things like memes, controversy, and celebrities.
Elon has done this often. He repeatably says 'Currently we don't deserve this valuation, but I think in the future we will. People have to believe that we can execute'. Well guess what, people invest in the future not in the present.
Based on Elon own predictions he expects a 40-50% growth rate with more then industry leading margins. If you believe that is true, and Elon does, the value of the stock should clearly be higher. And this has been his line on growth for years now.
Elon makes really little sense with these, its as if tweets don't represent a well considered opinion with context.
I'm not arguing that Elon predictions are wrong or not, but based on his own prediction the stock is not actually overvalued.
These kinds of phenomena make me slightly worried about the long-term viability of index funds as an investing strategy.
There is absolutely nothing about this information that reflects on Tesla's value as a company, or its business prospects. And, while there's certainly some intrinsic value in an S&P 500 listing - as an advertising device, if nothing else - it's hard to imagine that it's worth $50bn. That leaves me worrying that what's really going on here is that index investors have created a large arbitrage opportunity that people were trying to exploit.
Why does this make you worry about index funds? Assuming you invest in a well diversified fund, the more of the market you invest in, the less one securities shenanigans matter.
In that case it's really just one index fund - the one that matches the S&P, and not index funds in general. I'm not sure why you use this as evidence of the S&P being an issue as they explicitly excluded that TSLA craziness.
We seem to be running afoul of the is-ought problem here. I'm not talking about how things ought to work. I'm inclined to agree with you on that front, but it's also not the concern I'm raising. I'm saying that this craziness strikes me as an indication that how things are actually working may not be how they ought to work. Or at least not how they ought to work according to the advice that's being given to countless retail investors.
But I'm still confused - the TSLA craziness is specifically excluded from index funds. If you had money in TSLA chances are you put it there yourself outside of an index fund and certainly not one that was S&P 500 focused (which is apparently the default choice).
The big pop and big drop around the S&P 500 decision is not just TSLA craziness. It's also S&P 500 craziness - people were, I'm guessing, speculating on the expected effect that an S&P 500 listing would have on demand for TSLA shares.
Or, to put it another way, I think we just saw another indication that the S&P 500 index is not immune to Goodhart's Law.
Think it's more that there are lots of less sophisticated investors in on TSLA. Inclusion in the SP500 does not usually send a stock to the moon because it's already priced in.
I think his point was TSLA should be included in the SP500 whatever index management think of this stock just based on numbers and not including it is kind of going against the market.
If you're indexing using just the S&P500 you're arguably making a quite directional bet on big established companies over the rest of the market already. Much broader indexes are in common usage. For someone indexing with those the fact that someone tried to arbitrage Tesla's entrance into the S&P500 and failed just looks like any other market movement. There are people on both sides of that bet, some won, some lost, and you get the average return between them both.
> And, while there's certainly some intrinsic value in an S&P 500 listing - as an advertising device, if nothing else - it's hard to imagine that it's worth $50bn
The value of being in an index is that 80% of the market is passive investing, most of which tracks indices. If TSLA were added to the S&P500, all of these index-tracking funds would have to buy it in order to continue to track the index
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[ 2.6 ms ] story [ 214 ms ] threadIt's a bad look if TSLA crashes and takes people's retirements funds down with it because of this "committee decision".
There is absolutely no reason to exclude them based on your criteria.
And also, there is no evidence that these stock prices changes are related to S&P 500 at all. It doesn't really matter for Tesla if they are in the S&P 500.
Edit:
What the hell is it with downvoting? Tesla is a global 24.58 billion USD revenue company. There is LITERALLY no indication in the S&P guidelines that Tesla doesn't fulfill some requirement. That's a simple fact no matter if you like Tesla or not.
Again, I couldn't care less if Tesla is in the S&P500 or not, but there is no series argument against it.
It's a target for mass retail speculation and options trading that make its stock an ill measure of the company's actual performance.
Qingdao TGOOD’s network is almost 8x larger than Tesla’s.
https://www.bloomberg.com/news/features/2019-10-15/china-ele...
https://insideevs.com/news/442139/norway-etron-eqc-sales-aug...
In a more mature EV market like Norway where there's actual competition and consumer choice, Tesla isn't doing so hot. From the article:
That's about a 7% market share (edit: New car sales in Norway, August, 2020) for Model 3, 9% for all Tesla models combined.If the VW group is already outselling Tesla in Norway 5 to 1 just in the BEV category, how can Tesla's market cap be 4 times higher than VW's? It fundamentally doesn't make sense.
Tesla: 10.6%
VW Group: 35.3%
Tesla had a fantastic first mover advantage, they're not making bad cars, but they're not special anymore. And in the real world, with competition, they're simply not stacking up very well. The trend is pretty clear to me. The stock market obviously disagrees, though.
No company in its right mind could hold 30% of the total car market, but what is actually surprising is that unlike many analysis's predicted, their global market share has been going up. Maybe the next round of Tesla killer is finally gone do something.
You are comparing Tesla to the largest auto maker in its home market during a global pandemic where Tesla has to export their car from California (yes they are insane enough to build cars in California) and they have to pay tariffs.
Tesla is building a gigantic factory in the middle of Europe until then Tesla will not have the market leading position in Europe while all European companies dumb their vehicles in Europe first. I still expect Tesla to big a significant junk of the European market going forward.
But you can't use Model 3 sales in Q2 or Q3 (as of yet) to show how well or poorly Tesla is doing. They batch produce their EU cars, and the shutdown meant they essentially skipped Model 3 deliveries in Q2, and Q3 is only beginning to spool up.
It's possible the Model 3 will lose its EU crown to the ID.3, but sales will once more be strong.
Tesla was the 9th largest company listed in the United States by market cap.[2]
1: https://www.fool.com/investing/2020/08/03/here-are-the-top-1...
2: https://markets.businessinsider.com/news/stocks/tesla-surpas...
https://en.wikipedia.org/wiki/S%26P_500_Index#Selection_crit...
"When considering the eligibility of a new addition, the committee assesses the company's merit using eight primary criteria: market capitalization, liquidity, domicile, public float, Global Industry Classification Standard and representation of the industries in the economy of the United States, financial viability, length of time publicly traded, and stock exchange."
"Going forward, eligible companies need to have at least 5% of voting rights held by the public. Companies with multiple share classes already in one of the indices will have until September 2022 to change their structures or face removal." ( https://www.dividend.com/news/2017/11/03/companies-multiple-... ). Same link as before.
From the S&P's own literature:
> To be eligible for S&P 500 index inclusion, a company should be a U.S. company, have a market capitalization of at least USD 8.2 billion, be highly liquid, have a public float of at least 50% of its shares outstanding, and its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be positive.
Tesla meets all of these qualifications as near as I can tell. It blows the market cap requirement out of the water and has been profitable for the trailing 4 consecutive quarters.
In the mean time, I would love the option of an index that is literally just "the largest companies", without all these exclusion criteria. I wonder how it would fare against indexes with lots of exclusion criteria.
"On July 31 [2017], S&P Dow Jones Indices, the outfit that oversees the S&P 500 and its constituency, announced that it would take steps to exclude companies with multiple share class structures. ... The move comes amid blowback from investors who have complained about company practices that are designed to keep majority, or total, voting control in the hands of its management and founders"
> Companies with multiple share classes already in one of the indices will have until September 2022 to change their structures or face removal.
> For existing constituents, the rule will apply with effect from September 2022, thus affording a five year grandfathering period to allow constituent companies to change their capital structure if they so wish.
From my reading, S&P has not yet announced a similar policy.
[1] https://research.ftserussell.com/products/downloads/FTSE_Rus...
But for the system as a whole, it's pretty important that the shareholders have the ability to vote for board members who will protect their interests, even if the power doesn't get used very often. That's why the SP committee is pushing back against multiclass shares...if the company's management controls the voting shares then they control the board which is supposed to be overseeing them, removing even a vague threat of accountability in a system that's already far from perfect.
Of course it's rational enough from the CEO's perspective - if your shareholders don't have any leverage over you, why would you give them money?
> Today on the Rational Reminder Podcast we have joining us Dr. David Blitzer who is the Managing Director and Chairman of the S&P Dow Jones index committee. He has been there from the time when indexes were barely even being traded and the first time S&P Futures began trading, and since then, indexing has turned into the massive phenomenon we all know today. Indeed, S&P indexes were (and still is) at the center of this explosion. Today Dr. Blitzer talks to us about the early days of indexing and shares some of his ideas about why indexing became so popular. We also discuss the possible reasons why some people still choose actively managed funds and the effect that the abundance of research has had on their dwindling appeal. Ever wondered where the rapid growth in indexing will end up? What happens after indexing? Can indexing become too big? Be sure to join us for this masterclass on indexing!
* https://rationalreminder.ca/podcast/54
* https://www.youtube.com/watch?v=LQbA_vBleU8
> David M. Blitzer is the former chairman of S&P Dow Jones Indices, where he was head of the index committee that determines which stocks are added to the S&P 500 Index, the Dow Jones Industrial Average, and all other stock market indices calculated by the company.[1] He held overall responsibility for index security selection, as well as index analysis and management.[2]
* https://en.wikipedia.org/wiki/David_M._Blitzer
Disclaimer: I am short $TSLA since about 2 weeks ago, because I can't wrap my head around the valuation and near parabolic move short-term. I do think that they are more valuable than some other large automakers, but probably not more than all of them put together. :)
How/where did you get shares to short? At what margin interest rate are you having to pay?
Per that, I'd imagine any brokerage would allow you to short them.
The Enterprise Value of Tesla ($398B) is only slightly more than the Enterprise Value of Toyota ($337B). VW's is $224B. They have a valuation larger than any other automaker, but not even close to that of all put together.
EV = market cap + debt - free cash
Not including debt in a company's valuation is like saying that the valuation of my house is only $100K if I still have a $400K mortgage on my $500K house.
Tend to stay away from anything that is "my cousins friend at work asked how to buy stocks because he wants to buy x"
Oh, so basically the entire stock market during the pandemic?
But, ye - things are crazy at the moment with retail investors
Maybe $TSLA and the market at large wouldn't be doing so well if rich investors could still spend money on vacations, luxury events, concerts, travel, etc?
The interiors and exteriors were actually bad. The infotainment system was buggy and cheap, but it was feature rich and fast. If it wasn't Tesla, people would hate it for not having buttons.
The reliability is notoriously bad too.
I don't see any genuine argument for "Best", they might have the hardest, lowest paid workers, or the only car you can natively play a 30 year old video game, but when comparing Tesla to Nissan or GM EVs, I don't see why you'd get a Tesla.
It's more expensive and you get less.
However, if they were the same price, I'd much, much rather have the Tesla. Nissan's battery tech [and capacity] is way worse than Tesla's.
Kia offer a seven-year warranty, even on the battery. And are joint first in the 2020 JD Powers survey.
Tesla are nowhere near that level. Your benchmarking is flawed.
But it can use its valuation to bring in capital to try and make the business into something else.
(The solar business is even worse; that's basically a generic product and should be expected to have extremely low margins in the long term)
When a stock join an index, all the index funds (which simply passively follow the index) have to purchase a proportionate amount of that Stock (and got rid of whatever stock was ejected). Sonic you think stock X will go into an index you know that there will soon be a brief surge in demand for shares of X. Why now own some so that when that surge happens you’ll make a quick profit? Oops, didn’t join, so now you probably want to get rid of thats tick you just held to flip.
I don’t think Tesla is a good investment but this particular and unusual case is not why.
Some people disliked Tesla's recent profitable quarters because they used green credits from Europe to make a fraction of their profit. Why is that a downside? Every industry has huge governmental incentives, that's nothing new.
The Europeans, who actually legislate based on science and reality, are supporting BEVs (Tesla) and taxing ICE makers who have no green options(Fiat-Chrysler), meanwhile the US has massive fossil fuel subsidies which help every ICE company. Isn't it rational for STEM-savvy investors to look at this massively misaligned governmental policy regime and predict future change based on sound science?
Tesla simply looked at the science and made a prediction on BEV demand, a prediction no other car company did (in fact, they fought to bury EV's internally in some cases), and now they're all behind on the future technology. Stock investors are tech-savvy, they want a technological car company; this is a "story" stock, plain and simple.
I agree that it's playing a bit into the valuation, but it seems to be momentum and cult of personality as well. Hard to justify a >1000 P/E just based upon environmental impact.
It's not about "disliking" the profits. The incentives are good.
It's people saying, "Tesla is profitable!", when all of the tiny profits come from one time charges.
>The Europeans, who actually legislate based on science and reality, are supporting BEVs (Tesla)
Did you know Tesla sales are down over most of Europe, as the "ICE companies" put out competitive vehicles?
Or like a coin machine where more people put in money because they see the other players continuously winning, resulting in mass FOMO driven investment similar to what happened with Cryptocurrencies.
https://ycharts.com/companies/TM/enterprise_value https://ycharts.com/companies/TSLA/enterprise_value
Even this is absurd, though.
Tesla has a couple US factories, one in China (practically owned by the CCP) and another under construction in Germany. They sell a few hundred thousand cars a year, and sales are relatively flat/slightly up y-o-y. They've never made a profit outside of selling credits, some of which have come from controversial schemes like their battery swap.
Meanwhile, Toyota has factories all around the world (20+ countries) and produces 10 million cars per year at a profit. It doesn't add up.
Toyota's revenue is around $280 billion, while Tesla's is around $25 billion, so Tesla will need to grow by a factor of 11 to hit Toyota's revenue.
Other manufacturers also generate/sell credits, so it's not like Tesla is alone there. Tesla being able to expand in a segment where most manufacturers only build compliance cars to avoid fines speaks to how effective they are at building EVs compared to everyone else, which is expected because they're the only manufacturer designing EVs from the ground up.
The scale of Tesla's production could be another reason for their valuation. If they're hitting roughly a tenth of Toyota's revenue with 3 factories, all of which are incomplete, that could speak to how efficiently they're using capital. For comparison, Toyota has 50+ factories they own and another ~20 contract/licensed/joint factories.
https://en.wikipedia.org/wiki/List_of_Toyota_factories
The Q2 sales figures aren't great if we examine them superficially, but their largest factory, Fremont, was closed for half the quarter too.
https://www.usatoday.com/story/tech/2020/07/22/tesla-makes-1...
Even approaching Q2 2019's production figures means Shanghai was able to take up most of the slack from Fremont sitting idle for ~1.5 months, and Shanghai only broke ground at the beginning of 2019.
Their production capacity by 2021 should be about double what it was when they sold a few hundred thousand cars in 2019. Production of the semi, cybertruck, expansion of the Shanghai factory, and completion of their factory in Germany should all increase production and revenue significantly.
The biggest question mark IMO is whether they can manufacturer their own battery cells. If they can pull that off, I don't see any technical hurdles to them approaching Toyota's $280 billion in revenue in the next 5-10 years.
Don't get me wrong, they're valuation is still very speculative, because they need to execute on these new factories/products/production lines, but like I said, I don't think their valuation is absurd.
I advised my friends to buy the dip around Feb for ~350, but now is the best time to at least sell 75% of the stock and take home a cool profit on the backs of fanboys.
[1] https://m.youtube.com/watch?v=fgDDcbDtWlY
Do you honestly believe that? Like how often do we need to see industries disrupted from outside. Tesla itself literally did this to the car industry, 'no way Tesla can innovate and beat GM'.
Panasonic and LG is focused on making deals with lots of people and leveraging their technology to make lots of money. They haven't fundamentally innovated on Lithium Ion in quite a long time. The are totally entrenched and will make slight incremental tweaks to their chemistry.
Tesla has been involved with battery technology for a long time and they know a huge amount about it. They basically wrote the book on how to do battery packs with Lithium Ion (people don't remember but putting together 1000s of cells back then was considered totally insane). The founders of half the battery startups once worked at Tesla.
They are also the largest consumers of lithium ion cells in the world by far and have more date about their performance then anybody else by far.
Tesla has multiple long term research agreements with some really good battery researchers, like Jeff Dahn and others. They have bought multiple companies that had interesting technology for battery or battery manufacturing. They have spent multiple 100M on this. They also have one or likely more pretty large pilot battery production lines.
They will release their own battery/battery manufacturing line and it will be ahead of what the state of the art is.
But I'm sure they spent all these many billions of $ and 5-10 years of research in order to do some news item twitter storm to booster their stock price in the short term. Does that honestly make sense to you as a strategy?
> a few months ago it was how novel their heating was
It is novel and its something that makes their cars more efficient. Its in every Model Y, you can open them up and see yourself if you don't believe that it exsits. And btw, the company that does the most teardowns (selling reports to the competition) confirmed that they had never seen a heat pump like that before.
Maybe, just maybe, Tesla is just doing good technology and there is not a actually a huge conspiracy.
That all said, I don't think you can value the stock based on them becoming a battery supplier or something stupid like that.
If short term fluctuations of less than 4 weeks are a bother (even in moderate amounts given the current overall market / economic instability), then it sounds more like day trading concerns.
Personally I'm withholding judgement until after battery day.
Insiders know what's up with battery day. I think it's more likely a 'sell the news' moment than not.
90% of their revenue comes from cars. Their solar installs are shrinking. What other business do they have?
>Personally I'm withholding judgement until after battery day.
No doubt we'll get some show, like the "1 million robotaxis!" or the Neuralink pig. Always something coming soon...
Gimme odds and I'd place a bet - they dominate the top 2-3 growing niches in auto (Battery tech & recycling, software/experience, and EV mass production). As long as their sales are constrained more by production than demand, it's unclear where their ceiling is.
You also need to consider they may just sell inputs to their competitors. Toyota may sell 10x the cars, but if Toyota must rely on Tesla battery factories, then Tesla can just eat their margin: Toyota sales feed Tesla's bottom line.
That would assume that Tesla somehow had a lasting monopoly on lithium ion batteries, which are ultimately a pretty generic product. In practice, you'd expect margins on batteries to be very, very low in the long term.
When was the last time you saw a Tesla ad on TV? When was the last time you saw Toyota or Ford sell a $7,000 driver assist upgrade or a $2,000 speed upgrade (both delivered over-the-air and instantly)? When was the last time you saw a Tesla dealer and not a store where you just go buy a Tesla like an iPhone? Tesla has the chance to dominate the car the way Apple dominates the smartphone and capture an enormous amount of value in the process, way more than any traditional car company has been able to.
It's better to compare an automotive giant with a different tech giant.
Or Tesla with another big brand/marketing car company like Audi, BMW.
The boring reality is that it's a bubble.
It can be both a bubble and people can also be failing to make the right comparisons. Apple and Amazon have both been in bubble territory before. Eventually their valuations were justified.
I was under the impression they did this deliberately because it was a means to drive down supplier prices and alleviate liabilities (e.g., Visteon, Delphi)
Shouldn't they all be up? Or was this already priced in?
We need a more algorithmic index, not one ruled by one central committee.
Wonder if there's an ETF that simply does market cap weighting and just picks top public companies by valuation.
If you think a more algorithmic approach would be better you could start one — perhaps you could even get into yc with it, though historically the index publishers themselves don’t make a lot of money directly.
You said it yourself: they're guidelines. I'm glad there are humans in the loop to exercise judgement when the guidelines may be giving a funny results.
> We need a more algorithmic index, not one ruled by one central committee.
IIRC, there already are many "algorithmic indexes", but they're not the S&P500 and there's no reason for the S&P500 to be one.
What if they exclude a company because of political ties to communist regimes? Or ESG concerns? To me neither of these is acceptable. I would be pretty annoyed if Exxon was excluded from SP500 because they contribute to Global Warming.
Go pick another index is not a defensible position when I'm criticizing the index's policies specifically. Yet to hear good reasons for why a committee "exercising judgement" is a good thing for the average investor.
Tesla stock price is too high imo
And yet people still piled onto this stock. As if they knew something Musk didn't.
[1] https://twitter.com/elonmusk/status/1256239815256797184
[2] Hard to believe given actual revenues and projected revenue growth
Is Elon Musk really sending hidden messages using tweet times? Has he done it before?
Or just, you know, good old search engine optimization. I'd assume this is widely done in marketing/PR.
It was about the stock split.
Which isn’t to say Tesla couldn’t eventually be worth whatever the market says (Tesla has managed to dodge some major problems like cheap oil, end of EV credits, a federal govt opposed to climate action, and COVID-19 and keep expanding... so the market is probably pricing in what that says about Tesla’s odds that they’re able to overcome such hurdles), but it probably is an accurate evaluation of what Musk thought at the time. Personally, I don’t invest in individual stocks as it’s too much of a gamble and it also can lead to extra paperwork or compromise of my professional standing. I suppose the market is seeing Tesla as an example of real growth in an overall market of decline in new automobile purchases, so maybe that’s it. The reach for yield. Still, seems crazy.
I think we are seeing the beginning of hyperinflation.
> how automotive works
This is the crux of the matter here. Many believe that Tesla is a car company and should be treated as such. Investors (I do own Tesla but not a significant portion of my portfolio) such as myself view it as a growing energy company. The cars are just batteries with wheels. I'm looking at products like Autobidder [1] in assessing potential long-term growth. They can create software, unlike Duke Energy, AEP, Toyota, GM, etc. which means they can do things like deploy algorithms, solar roof panels, power walls, etc. to better allocate energy at better prices. Obviously that's speculation, but that's just what investing is.
I would also say I disagree that we are beginning to see hyperinflation. We're actually facing deflationary pressure due to demand for the dollar, but we do see run-ups in stock prices because investors are chasing yield, and without access to alternatives (for many like myself) like venture capital or investing in private companies (SpaceX) there isn't much left to do with your money except buy real estate and rent it out (risky and work) or just invest in equities.
I'd also add that although the US has been printing money, most other countries, especially western democracies, have faced serious problems as well and have also been printing money, and that interest on borrowed amounts isn't that much, though we should really be looking at more fiscally responsible behaviors. Good luck with that though. Democrats will spend money on social programs (even when it doesn't make sense) and Republicans will find ways to cut taxes and kick that can down the road too.
[1] https://www.tesla.com/support/autobidder
I think it would be fairer to characterize Tesla as a growning energy startup. I can see the potential, but potential has to be realized, and Tesla is not the only startup working with solar and batteries.
In any case, the $450bn valuation dwarfs not just every other car maker, but also every other energy company.
$450bn is the combined market value of Toyota, VW, and Exxon.
Tesla has the potential to create an actual subscription services that people would pay for. Autopilot is $8,000 right now, but activate it now for 72 hours for $50? Maybe $100? Now you might be eating into airlines as well. No other car company that has tried subscription services has been met with fanfare. Tesla is the only one who can get away with it.
Little things like that make me say that it's a trillion dollar company, easily, once they start realizing that potential. But that's investing. We use numbers, our own intuition, and then make decisions! :)
There does seem to be a certain type of investor who believes that the only important thing about a stock is hype, and not whether it, could say, even theoretically ever make enough income to justify its valuation. Of course, this can be true in the short term.
> Investors (I do own Tesla but not a significant portion of my portfolio) such as myself view it as a growing energy company.
That would surely imply a _lower_ valuation? You wouldn't expect lasting high margins in that business, whereas it is at least _possible_ (if not common) in the auto industry.
I think that's one difference here. I do expect lasting high margins (car sales and services). I mentioned this in another comment, but being able to sell passes for autopilot trips for $100 or something are going to be very lucrative.
Think about something like the Tesla supercharger network. Ok now that Tesla is also an energy supplier and uses software to find good rates, stores energy in batteries, etc, they'll better be able to get the best price on energy. You can sell excess energy back into the grid via Tesla software with your solar roof, for example, or charge your Tesla even cheaper than competitors might using a traditional energy grid.
These are just possibilities, but I see the end result being an extremely profitable business with great margins. My only area of concern right now is that their auto service is abysmal. They charge a premium price for a car, but boy it's nowhere near the service you get with Mercedes or BMW. Lots of "well that's in-spec" types of comments from service teams. Lack of loaner cars at times, just all around not great service (though there are exceptions) that I've seen first-hand and anecdotally. Even the r/Tesla subreddit will tell you it's bad.
Okay, so assuming the grid will support this, one would expect other energy companies to buy solar power, from any domestic solar panels (this already happens in some markets). So why would one buy Tesla panels, which were tied to one buyer, who could use that tie-in to get lower prices (if that were legal; electricity markets are heavily regulated in most countries and I suspect this sort of tie-in would ultimately not be legal).
I can see two scenarios here (assuming a developed grid allowing this sort of feed-in). (a) Tesla panel owners can sell to any energy company, like anyone else. Tesla can thus sell their panels for the same as anyone else (ie, pretty low margins),but they have no advantage as an energy purchaser. (b) Tesla panels are tied to Tesla as an energy purchaser, whereas generic panel owners can sell to anyone. Tesla gets cheaper power, but their panels are now an inferior product and they must sell them at negative margins to get them on roofs.
Any cleverness about domestic grid pricing will likely have to be enabled by national grid controllers, and accessible to all energy companies. While I do think it will come, I would doubt that there's room for anyone to have a monopoly in most markets, and I think it may actually be a hard sell to consumers, because traditionally consumers _hate_ variable pricing, even if it's ultimately to their benefit, for psychological reasons.
RE the supercharger network, I suspect that this is at best a short-term advantage. It's already a tiny part of the high-speed charger infrastructure in many countries. It probably is a clear advantage for now in the US, but that shouldn't be expected to be a long-lasting situation.
Using something like Powerwall means you can still have lower rates with variable pricing. When most are connected to the traditional energy grid running their AC units during the peak hours and getting charged peak rates, you can draw from Powerwall where you've stored energy either over time or potentially over night when rates are cheaper. Automatically. You can also eventually probably see real-time electric rates. With software, Telsa could potentially bid on electricity and find reduced rates for you. There's a lot of possibilities here.
Idk what the future will hold, but do I want to bet on Duke Energy and BMW or do I want to bet on Tesla? I'm probably betting on Tesla based on what I've seen as part of my portfolio.
I would think that Tesla's best avenue for lasting high margins would actually be the cars; other companies have managed that before, especially in the luxury/semi-luxury market (BMW's margins are decent, say). But they'd really need to capture the whole high end market, if not more high end market than actually exists, to justify their prices.
> But they'd really need to capture the whole high end market, if not more high end market than actually exists, to justify their prices.
Why? They can probably effectively sell Tesla Model 3 style sedans at BMW or better margins around $35,000. I don't think they need to capture the high-end market anymore than Apple does. Sure, insert famous person here uses an iPhone, but so do I and so does my grandma.
Because the people who 'understand how automotive works' have done such a fantastic job in the last 10 years. We should clearly listen to these people. Get your investment advice from Bob Lutz.
And btw, just because you have different opinion, calling everybody else essentially 'stupid' is not really a great argument.
I have no basis for this suggestion, but I’ve actually been thinking lately that SoftBank and Musk coordinated the TSLA infinity squeeze that we’ve all been watching.
It’s a great way to make a massive investment in TSLA, at the price you were willing to pay anyway, while sending the stock through the roof so the company can take the needed liquidity from the market.
TSLA added one of SoftBank’s largest financiers to the board in late April.
Because there is no rational way that a company with $27bn revenue rises from ~$130bn to ~$450bn in market cap in three months. I've posted in another thread how VW builds 11 million cars each year, that's 1 out of 8 cars globally, at immense profit, and is valued at €80bn.
In any case, if the cause for the tweet was solely that the stock price was too high, well -- it was $700 back then, so I guess we'll see another split real soon now again.
https://mobile.reuters.com/article/amp/idUSTRE49R3I920081028
That's a good example, thank you for sharing it again!
Based on Elon own predictions he expects a 40-50% growth rate with more then industry leading margins. If you believe that is true, and Elon does, the value of the stock should clearly be higher. And this has been his line on growth for years now.
Elon makes really little sense with these, its as if tweets don't represent a well considered opinion with context.
I'm not arguing that Elon predictions are wrong or not, but based on his own prediction the stock is not actually overvalued.
There is absolutely nothing about this information that reflects on Tesla's value as a company, or its business prospects. And, while there's certainly some intrinsic value in an S&P 500 listing - as an advertising device, if nothing else - it's hard to imagine that it's worth $50bn. That leaves me worrying that what's really going on here is that index investors have created a large arbitrage opportunity that people were trying to exploit.
Or, to put it another way, I think we just saw another indication that the S&P 500 index is not immune to Goodhart's Law.
The value of being in an index is that 80% of the market is passive investing, most of which tracks indices. If TSLA were added to the S&P500, all of these index-tracking funds would have to buy it in order to continue to track the index