
Tesla Shares Fall as It Fails to Make It into S&P 500 Index - tosh
https://www.nytimes.com/reuters/2020/09/08/business/08reuters-tesla-stocks.html
======
blakesterz
I never thought about how a stock ends up on the Index before! Apparently it's
by committee:

[https://en.wikipedia.org/wiki/S%26P_500_Index#Selection_crit...](https://en.wikipedia.org/wiki/S%26P_500_Index#Selection_criteria)

"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."

~~~
drocer88
Actual reason is Tesla has multiple class shares:
[https://www.dividend.com/news/2017/11/03/companies-
multiple-...](https://www.dividend.com/news/2017/11/03/companies-multiple-
share-class-structures-cannot-be-part-sp-500/)

"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"

~~~
SoylentOrange
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.

~~~
jcranmer
Facebook is grandfathered in, having been added in 2013. Although the linked
article says the following:

> Companies with multiple share classes already in one of the indices will
> have until September 2022 to change their structures or face removal.

~~~
andrewla
That's not S&P -- that's FTSE Russell [1]:

> 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...](https://research.ftserussell.com/products/downloads/FTSE_Russell_Voting_Rights_Consultation_Next_Steps.pdf)

------
ckastner
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.

[1]
[https://twitter.com/elonmusk/status/1256239815256797184](https://twitter.com/elonmusk/status/1256239815256797184)

[2] Hard to believe given actual revenues and projected revenue growth

~~~
tomerico
That tweet was actually intended to hide the message of the split. You can see
that it was sent on 5/1 at 8:11. The 5:1 split was announced on 8/11.

~~~
blake88
That's some advanced numerology right here...

Is Elon Musk really sending hidden messages using tweet times? Has he done it
before?

~~~
antsar
> advanced numerology

Or just, you know, good old search engine optimization. I'd assume this is
widely done in marketing/PR.

~~~
boomboomsubban
It's hard to believe any marketing team has control over Musk's twitter, given
things like his bragging about overthrowing the Bolivia government.

~~~
SketchySeaBeast
"Ok, today as a viral marketing plan we're going to get our boss in trouble
with the SEC."

------
yalogin
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.

~~~
sokoloff
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. :)

~~~
MuffinFlavored
> Disclaimer: I am short $TSLA since about 2 weeks ago

How/where did you get shares to short? At what margin interest rate are you
having to pay?

~~~
arthurcolle
he's probably using puts

~~~
sokoloff
No. I'm outright shorting the shares. Implied volatility is so high now as to
make buying options fairly unattractive for medium and long-term bets.

~~~
MuffinFlavored
Say you want to short $10,000 worth of TSLA shares, what kind of margin
interest rate are you paying? Is it 8%/yr?

~~~
sokoloff
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).

------
samfisher83
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?

~~~
jliptzin
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.

~~~
extremeMath
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.

The boring reality is that it's a bubble.

~~~
jliptzin
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.

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mumblemumble
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.

~~~
SketchySeaBeast
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.

~~~
mumblemumble
A lot of people are just piled onto S&P 500 index funds, often because that's
the only passive option offered by their 401(k) plan.

~~~
SketchySeaBeast
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.

~~~
mumblemumble
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.

~~~
SketchySeaBeast
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).

~~~
mumblemumble
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.

~~~
robjan
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.

------
256lie
Is that a bad thing? Tesla's consumer base is not large or diverse enough to
be representative of the national economy or population.

~~~
nickik
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.

~~~
henrikschroder
> They the major players in EV in all major EV markets, US, Europe, China.

[https://insideevs.com/news/442139/norway-etron-eqc-sales-
aug...](https://insideevs.com/news/442139/norway-etron-eqc-sales-august-2020/)

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.

~~~
nickik
Using one month of data from one small country is honestly the most
embarrassing argument I have ever seen on Hacker News.

~~~
henrikschroder
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.

~~~
nickik
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.

~~~
fomine3
OP points real evidence for BEV.

~~~
nickik
[https://cleantechnica.com/2020/08/15/tesla-had-28-of-
worlds-...](https://cleantechnica.com/2020/08/15/tesla-had-28-of-worlds-fully-
electric-vehicle-sales-in-1st-half-of-2020/)

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hartator
Is the SP500 reshuffle each month? Why Tesla inclusion was expected this month
rather than next or previous?

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gruez
>Shares of Etsy, which have more than doubled this year, were up about 1% in
premarket trading, while Teradyne and Catalent were lower.

Shouldn't they all be up? Or was this already priced in?

~~~
robjan
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.

------
JackPoach
Tesla shares might be falling for other reasons. Not being profitable for
years and years is one reason why this might be happening.

~~~
skohan
Or just retail investors cashing out of an absurd, unjustified bubble

~~~
JackPoach
Another reasonable explanation.

------
safog
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.

~~~
ardy42
> 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 _guide_ lines. 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.

~~~
safog
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.

