
Tesla jumps 14% on S&P 500 inclusion speculation Now the 10th by market value - devy
https://www.cnbc.com/2020/07/13/tesla-jumps-11percent-on-sp-500-inclusion-speculation---now-the-10th-biggest-us-stock-by-market-value.html
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anw
I love the idea of Tesla, and what it's helped promote. But I do worry about
its cult of personality, and what effect that could have on the stock should
something happen to Elon.

I got in around late 2012 because Elon spoke about really good ideas, and I
really wanted to promote what he was talking about. It's been quite a ride,
with the acquisitions of Solar City and Maxwell Technologies. Those additions
made me have hope we'd see a real mover that could help get a lot of the world
onto solar energy.

However, I look at the stock prices right now, and I can't help but see
they've been greatly overvalued since ~January 2020 with the major driving
force (in my opinion) only being the cult of Elon.

I admire what he's done, and his ambition, but I also worry if he gets removed
or hit by a CyberTruck, if the company will still continue as it is now, or if
it would spell disaster.

~~~
pletsch
Completely agree, Tesla's stock has a bus factor of 1. I do believe it's made
a big enough push already to spark the change to clean energy, and that's what
really matters here.

~~~
bmitc
> I do believe it's made a big enough push already to spark the change to
> clean energy

Are there studies that show this? I don't see or know how any push in cars,
electric or not, is necessarily moving us toward cleaner transportation much
less clean energy.

~~~
pletsch
Here's a couple links, one a paper from McGill tying green energy and
political power, and an article from National Geographic saying "Two-thirds of
young adults (aged 18 to 34) say they’re inclined to vote for a political
candidate who supports cutting greenhouse gas emissions and increasing
financial incentives for renewable energy".

[https://www.sciencedirect.com/science/article/pii/S221462961...](https://www.sciencedirect.com/science/article/pii/S2214629617303468)

[https://www.nationalgeographic.com/environment/great-
energy-...](https://www.nationalgeographic.com/environment/great-energy-
challenge/2014/poll-finds-generation-gap-on-energy-issues-as-millennials-
voice-climate-concerns/)

~~~
bmitc
Thank you the links. I will read them in more detail, but at first glance,
they don't address what I am asking.

If you look at an EV versus ICE car in isolation, the EV is definitely
greener. However, if we look at the whole system and process of electric
energy production, gas production, battery production and disposal, etc., I
have not seen analyses that compare which is actually greener. I would love to
be pointed to this, as I have tried to find it! As far as I can tell from my
searching, they are essentially overall the same, except that the effects are
spread around in time and place.

Now, I can assume that there is a tacit argument that putting more electric
vehicles on the road increases the demand for clean energy because electric
vehicles tax electricity production heavier, which is not that green now.
However, are electric cars really the primary driving factor for clean
electricity production? Actual clean energy production is obviously extremely
important.

Also, I don't understand how continually building more and more cars gets us
to a cleaner future. I imagine whenever self-driving cars arrive, we'll all
just be sitting in packed streets. That doesn't feel necessarily cleaner or
futuristic.

~~~
bryanlarsen
? I have not seen analyses that compare which is actually greener. I would
love to be pointed to this,

[https://www.ucsusa.org/resources/cleaner-cars-cradle-
grave](https://www.ucsusa.org/resources/cleaner-cars-cradle-grave)

In summary, it takes about 18 months of driving before an the reduced gasoline
emissions compensates for the increased manufacturing emissions.

> I imagine whenever self-driving cars arrive, we'll all just be sitting in
> packed streets.

Agreed. So many people think that self-driving cars are going to reduce
congestion, an argument I don't buy. They'll make congestion much worse IMO.

~~~
bmitc
Thanks for the link! That's the first time I've seen an analysis like that in
terms of the time it takes for a crossover event. It'll take longer to read
through their full report. Although, it does exclude the environmental impact
of the battery disposal problem, at least in the summary article.

And yea, I'm not looking forward to the self-driving "utopia". I feel it's
solving the wrong problems and will create wholly new problems.

------
RivieraKid
Tesla's market cap per car sold is 112x higher than Volkswagen (sales data for
last year). They never had a profitable year.

~~~
chrisseaton
Tesla completely turned the industry on its head with their electric cars -
something dinosaur incumbents like Volkswagen were either unwilling or unable
to do. Maybe people see a future in Tesla and not as much in Volkswagen, and
the price reflects the future not the past?

~~~
Certhas
VW is the company with the third largest R&D budget, after Amazon and almost
tied with Alphabet. More than ten times larger than Tesla.

Over recent years they built a substantial tech base for EVs that they are on
the brink of introducing at scale. The Zwickau plant alone is planned to scale
to 330000 EVs/y next year. ICE production at Zwickau is shut down.

This is diametrically opposed to, for example, BMW who seem to be more
doubling down on ICE with token efforts towards EVs for now. It's not insane
to say that Tesla will eat BMWs share of the future, but that is valued ten
times lower.

~~~
nickik
I hate these 'R&D' budget argument. The can spend money but actually Tesla was
first on all the important stuff. So have no idea why this all of a sudden is
supposed to matter.

VW can barley get the basic software for their EV right at the moment. The CEO
has admitted the lead Tesla has.

> planned to scale to 330000 EVs/y next year.

They have been missing their claimed targets many times before. Even if they
manage that, only a tiny % of current cars sold are electric. Nobody believes
Tesla will own 100% of the market.

If VW can actually make good on all those promesses, their stock will also go
up.

But having the legacy and investment of massively depreciating ICE assets and
not shown the ability to produce profits with EVs, they will need to execute
to convince investors again.

~~~
Certhas
It's a question of ressources. Just like it's hard to see Microsoft becoming
irrelevant simply because they have so much cash that they can just keep
trying.

What exactly was Tesla first on? They managed decent range but there EVs are
simply not that difficult to build compared to ICEs. Software is big but they
know they are behind they have the ressources, and the institutional
commitment.

It's not that I think Tesla should have the same cats/validation ratio as VW.
They are ahead after all. But it's very hard to see the extend of the
discrepancy in validation as justified over the long run for me. And it's not
like VW is ignoring adjacent markets, Moia is a reasonably successful pilot,
etc...

~~~
nickik
> What exactly was Tesla first on? They managed decent range but there EVs are
> simply not that difficult to build compared to ICEs.

This myth simply does not hold up once you consider how pretty much all
manufactures have run into massive problems with EV production and struggle to
achieve margin.

If it was so easy as claimed, Tesla would not multiple of the highest selling
EV all over the world.

~~~
fomine3
Tesla need to sell EV but others not. Selling ICE/HV/PHEV cars is more
profitable for now.

~~~
nickik
Stocks are forward looking into the future. Making big profits now was not
moving the stocks up, and now companies like Ford are not even making much
profit anymore.

All that ICE infrastructure is massive bound up capital, that gone be a
negative in a couple of years.

------
bobcostas55
It's a complete mystery to me why they don't raise some capital at this
valuation. They could wipe off all the debt and have a decade's worth of capex
in cash for a very small dilution.

~~~
modeless
They already did an offering earlier this year for $2B when it first started
going crazy. You're right that they should do another.

What I don't understand is how all the S&P 500 index funds don't get soaked
_every_ time a stock enters or leaves the index. Everyone in the world can
front-run those giant trades, just like we're seeing now. Do the index funds
just absorb the losses every time or do they have enough flexibility to avoid
it somehow?

~~~
bsamuels
Great question; index funds rarely carry the entire portfolio of 500
securities - it's very expensive to manage that much stock at scale and
rebalance each one.

What they do instead is hold a limited portfolio of 10, 50, 100 stocks from
the S&P500 that best "represent" the index.

Technically Tesla is already in the S&P500; the real question is whether index
fund managers are going to decide to start using it in their representation of
the index.

The other commenter is also correct. There are many ways to hedge in favor of
or against a stock issue becoming indexed by S&p500 funds in a way to dampen
the impact of people trying to 'front-run' (although it's not actually
frontrunning in the legal sense)

~~~
asaph
> index funds rarely carry the entire portfolio of 500 securities - it's very
> expensive to manage that much stock at scale and rebalance each one.

This doesn't pass the sniff test. Funds calling themselves "S&P 500" funds but
not actually holding the 500 companies in the index seems like false
advertising at best and downright fraud at worst. And rebalancing a fund's
holdings should be an automated process whose cost should be covered by the
funds fees.

~~~
pmiller2
They're called "S&P 500 index funds" because they _closely track_ the S&P 500.
If you look at literally any such fund, you will see they always have some
nonzero tracking error. That's mathematically unavoidable. The task of the
fund manager is to minimize that error, among other things.

~~~
asaph
I thought the whole point of "index funds" was that they are not "actively
managed" by a human fund manager. They should just automatically track the
index (with some minimal tracking error).

~~~
pmiller2
Mostly. They aren't "actively managed" in the same sense as non-index funds.
Humans need to make some decisions about what to include, and monitor to make
sure things like tracking error are low and tax efficiency is high. This is
not trivial, which is why index funds were not just some obvious concept that
has existed forever, and why, when John Bogle articulated the concept in the
70s at Vanguard, tens of them didn't just immediately pop up.

They're the type of object that looks very simple from the outside, and acts
very simply, but, under the covers there's a good deal of stuff going on. It's
kind of like how the steam engine is a very simple concept (in fact, the
ancient Greeks invented a simple steam engine [0]), but, if you look at it at
the very lowest level, you can't model how each individual water molecule
contributes to the functioning of the whole.

That's not to say index funds have emergent behaviors. Rather that they work
internally in ways you, the investor, don't need to care about, because
they're designed to have that fairly predictable and simple external behavior.

Put another way: ever wonder why an index fund would need to have any
management fee at all ( _i.e._ why there's a nonzero expense ratio)? The
reason is because they are managed, and you have to pay people to do that.

\---

[0]:
[https://en.wikipedia.org/wiki/Aeolipile](https://en.wikipedia.org/wiki/Aeolipile)

------
tpae
As a former engineer at Tesla, the valuation does not make sense at all. Their
internal infrastructure is a complete mess, and honestly, it's full of
security issues, I wouldn't be surprised if things start falling apart.

~~~
rosywoozlechan
A mistake some engineers make, I've made it myself, is thinking that a
company's success has anything to do with how good the code is from a computer
science ivory tower perspective. A fast growing startup usually has a huge
mess from the fast growth no? Haven't seen it otherwise, but that's just my
anecdotal sample size.

~~~
anonu
Second this. A company is more than just software and code... It's also
marketing, hype, goodwill, customer service, design, UX etc...

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andrewmcwatters
Clearly worth more than book value of approximately $59.76 at the time of
writing. But over 28 times so? Sure, OK.

~~~
enraged_camel
Much of this is driven by retail investors, of whom there are many more now
since sports betting has not been available for months.

~~~
jgalt212
You raise a very interesting wrinkle here. When/if sports resume and the
gamblers can gamble again, does the $TSLA money move back into sports?

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tdhoot
This sucks for everyone in S&P 500 funds who didn't jump on the Tesla
bandwagon because they thought it was overvalued. Now you got none of the
upside but you get to hold the bag.

~~~
rjkennedy98
Is this the new IPO? Pump a stock till index investors are forced to own it?

------
spocklivelong
Valuations like these are unsustainable, and so far fetched from reality. It
is only a matter of time before TSLA gets a correction, which will drop the
stock ~ 30 - 40% from its ATH.

------
partiallypro
I love Tesla, SpaceX and Elon (as a visionary) but don't understand the
valuation. I remember when we (most of us) all laughed at this $420/share
buyout valuation, because it was so far from reality...and now it's trading
nearly 4x that, in less than a year...on really no real news outside of
hitting production numbers. The fact that Tesla is now bigger than Toyota is
absolutely bonkers to me. Toyota isn't that far behind the curve.

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mrnobody_67
... and yet they still haven't answered questions from David Einhorn about
their accounts receivable:
[https://www.bloomberg.com/news/articles/2019-11-22/einhorn-a...](https://www.bloomberg.com/news/articles/2019-11-22/einhorn-
again-questions-tesla-accounts-receivable-k3aii1g2)

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justicezyx
I am happy for Tesla, and the original master plan to fund the Mars
colonization.

I would politely remind Mr. Elon Must where he started. He was on a grand
mission that I believe was right and important. That was the reason I became a
Tesla stock owner.

~~~
xiphias2
Tesla already succeeded by moving electrification of cars earlier than it
would have been normally done by other car companies. The biggest change in
the master plan is moving to self driving cars instead of cheap cars. We'll
see how much time the achievement takes, but my guess is that it will be
faster than replacing all cars in the world with electric ones.

------
SilasX
Tesla _wasn 't already_ in the S&P 500? Even at the more sane $100 share
price, that would put it at ~$20 billion market cap, well above about two
fifths of the existing S&P 500 companies.

Source: Sortable list last updated July 7: [https://fknol.com/list/stock-list-
sp-500-index.php](https://fknol.com/list/stock-list-sp-500-index.php)

~~~
snarf21
It is more than just market cap that lets you into the S&P. There are also
other rules. Tesla is projected to pass the GAAP positive earnings test soon.

A committee selects each of the index's 500 corporations based on their
liquidity, size, and industry. It rebalances the index quarterly, in March,
June, September, and December. To qualify for the index, a company must be in
the United States, have an unadjusted market cap of at least $8.2 billion. At
least 50% of the corporation's stock must be available to the public. Its
stock price must be at least $1 per share. It must file a 10-K annual report.
At least 50% of its fixed assets and revenues must be in the United States.
_Finally, it must have at least four consecutive quarters of positive
earnings._

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mchusma
Tesla really did accelerate renewable energy and battery tech by maybe a
decade.

I would love to see them raise $20B and just massively move us another decade
forward towards a sustainable energy future. But relative to Uber, etc Elon
has always been less aggressive on equity raises, as he believes that
constraints help.

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llamataboot
So individual heavyweights get to front-run the ETFs and then sell to them at
an inflated value? Sounds about right...

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chvid
Volkswagen once got to be the world most valuable public traded company ...

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boromi
Short squeeze coming up?

~~~
DudeInBasement
They already got btfo a few months ago.

~~~
BobbyJo
They get btfo every few months tho

