Tesla is--and has been for a while now--the largest market cap company that is not included in the S&P 500. To be considered for inclusion in the S&P, companies must show at least 4 consecutive quarters of profitability.
Tesla's next earnings release (which is in roughly two weeks) has the possibility of being that fourth consecutive quarter. S&P isn't then required to include them, but it seems likely they would. Once they did so, index funds and ETFs that benchmark to the S&P (which is the biggest single benchmark of such funds, by a lot) would then be forced to buy the stock (at whatever price it traded at the time) in proportion to its ranking in the index. At one point today, Tesla was top-10.
Clearly this is a bit of a conspiracy theory, but this type of behavior (bidding up shares in front of index inclusion) isn't that unusual. What is unusual is that Tesla has gotten so large prior to inclusion: stocks normally join in the 500s - 300s or so, and grow from there.
Does 500 - 300 represent the share price? If so, do most companies issue a similar number of shares before getting included in the S&P?
In most cases a company lifecycle is like, we launched a company, it's private for a few years, then it goes public. Either shortly before going public, but maybe a few years after, it becomes profitable. It then grows and grows etc, and joins the S&P by virtue of its size getting larger than the 500th-ranked firm already in the S&P ("size" here is market cap).
Tesla is different, because Tesla went public and was unprofitable, then got ~big and was still unprofitable, and now for (largely unknown) reasons would be, if it were included, the 10th largest company in the S&P, but is still unprofitable. They may cross that threshold later this month, but this process--joining the S&P at rank 10--is highly unusual.
#1 Interest rates are as low as they have been in an extremely long time, people/institutions want higher returns so they are putting money into vehicles with higher returns(stocks).
(I'm aware there are other premia I'm not including, but, simplistically)
Really? I'd normally guess that people with high incomes are most likely to invest, and to qualify for a stimulus check you couldn't have a really high income, right? And if you're receiving unemployment, people at the higher end of the income range will be receiving less because of benefit caps and won't have "excess" income, right?
I've heard claims in the past that a large share of stock is held by the wealthiest minority (like the top 10% owning > 80% of stock or something, the top 1% owning ~50% etc). Can the people investing their stimulus or unemployment benefits really change prices that much?
source - https://www.cnbc.com/2020/05/21/many-americans-used-part-of-...
* AMZN: huge swaths of new and existing are customers moving their shopping online. They stand to profit from this in the short and medium term at least, and I would wager that the change in shopping habits would result in a noticeable number of long term changes sticking.
* TSLA: a lot to unwind here, but it's a combination of their recent delivery numbers and large amounts of retail investor speculation. While I believe the stock was undervalued before, quarterly delivery numbers wouldn't fully explain such large jumps.
* AAPL: I'm at a loss on this one, but I also don't know a lot about it. With many folks not able to spend their discretionary income on bars/restaurants/travel/etc. I can see more of this money being channeled to iPhones.
Don't forget about AWS. With a lot of people being stuck inside due to covid lockdowns, people watch more Netflix and use more online services in general. With AWS powering a gigantic chunk of the modern web, it is no surprise that they are doing so well right now.
And maybe games and other online content, juicing Apple's "services" revenue?
Of course it is hard to value anything right now because coming up with a discount rate is fraught and you have government manipulation of the asset market as well.
I don't know if there are waaaay smarter and informed people than me that know something about TSLA's long-term growth prospects or it is just bing meme-ed into orbit.
Very strange times!
With Tesla's massive monopoly on driver data (likely a prerequisite for level 5 automation) and head start in driverless tech overal there is absolutely a chance that TSLA puts all the aforementioned companies out of business.
I don't know how likely that is, but it's a hell of a lottery ticket regardless.
Found this: https://docs.google.com/spreadsheets/u/1/d/1HflVng6sYIb6Gs4p...
Not sure how accurate it is, but the rest of the industry is only worth 773 billion combined. Which means if you invest now at a market cap of 277b, you can only 3x your money on that lottery ticket.
Also, it's would pretty naive to think that governments would allow a single company to have such sort of monopoly like you describe.
The idea is that gathering this data may be a prerequisite to resolving the bajillions fringe-cases that are currently in the way of level 4 autonomy.
With all Toyota's data, you will have to buy a brand new car to get whatever improvements your data contributed to the system.
With Tesla, you get those improvements while you're asleep and maybe your car drives a bit better. For a tech-centric space where people are used to software improving overtime, Tesla will have an edge.
If amount of data collected and OTA are Tesla's big edge then there's even less chance they will dominate the market and put all their competitors out of business, because those advantages are going to go away over the next couple of years.
As an example, image that you shorted bitcoin half-way up its rise ... you would be broke! Possibly less than broke! On the other hand, you would have eventually been right, just the timing on a bubble stock (or possible meme stock, in this case) can make that sort of thing dangerous.
A short bet means unlimited downside, and if you arrive at 1/5 of the current market cap, there seems like a significant risk the market has seen something you haven't. Tesla was at $200 one year ago.
Guaranteed to be an irrational bubble?
Yes! This is maybe the most likely outcome!
However, to date I have not heard a good reason why Tesla should be valued higher the the other leading car companies combined. There is no moat for them. Anything they are doing, all of the other car companies can easily retool to do ... they don't because not everyone wants an electric car.
Established automakers are structurally incapable of competing, due to innovator's dilemma. BEVs will eventually get cheaper than fossil vehicles due to decreasing drivetrain cost (li-ion battery++), but this tech will not be a commodity for at least a decade after this point - requires billions of R&D. Means established automakers are under an existential threat they aren't facing. Their best shot at competing BEV models with inferior price/performance make this abundantly clear.
Production capacity of enough & the right batteries & motors requires both capital investment and R&D that won't materialize out of thin air just due to demand; existing manufacturers won't be able to source these at competitive price and performance. Development must be in-house at scale. Takes years, no one else is trying. Tens of billions investment. Capital is dirt cheap, so established industry's coffers does not protect them. Tesla now has 15 years lead on another startup trying the same.
Superior battery tech at such scale also has unquenchable demand from solar energy industry. As long as no one can compete on price & performance, margins are huge. Will eventually be a commodity, but that's two decades away. Might also be network effects at play here.
Must also consider fully-loaded cost of established industry -- meaning enterprise values that consider their debts & pension obligations, not just market cap.
Autonomous driving is an industry-defining strategic advantage. Autonomous driving means Uber is obsolete. It's like landing used rockets on a barge. Established industry won't be able to just lease this capability for less than their entire profit margin. Harder than making cars. Waymo approach makes centimeter-level manually curated maps of their entire area of operation; not scalable & not compatible with inclement weather. Computer vision necessary. No one but Tesla has a real-world fleet gathering data at scale any time soon. Might be a strategically critical advantage. But even if multiple autonomous approaches succeed at the same time, established automakers are over a barrel here.
Software is eating the world, established automakers don't have the culture for it. UX & software integration increasingly important both for a good driving experience & economics of maintaining a vehicle fleet. Recently saw VW slide bragging about how many lines of code they're making. It shows. Structurally incapable of competing there.
Coronavirus pandemic accelerates Tesla's advantage, as the entire established industry gets its profit margins crushed far into unprofitable territory.
Lots of misc. points: Dealer network doesn't like EVs due to lower maintenance costs, so established automakers have a sales problem there.
Charging network availability for long trips is an obvious UX problem that no one else is handling at scale. It's hard when you don't have batteries to even out load spikes; competitors without cheap multi-kWh batteries in their charging stations will get screwed by energy distributors and be prohibitively expensive. This is also abundantly clear from existing industry dynamics.
Etc.
But yes: Autopilot/autonomous driving, data collection & curating for this, OS controlling all actuators & sensors in the cars, car UX, OTA updates of this, management of fleet sensor data for health monitoring/preventive maintenance of common problems, custom software controlling manufacturing hardware and supply chain, charging station software (local & fleet level), software management of stationary battery systems, battery packs in cars, motors +++.
Doesn't compare to hooking up tenants to a desk space.
Genuinely interested.
> #4 People are using their stimulus checks extra unemployment money to invest in stocks.
Retail investors aren't going to drive prices that much.
Just a few weeks ago we looked at oil futures going negative here on HN, and there were thousands of retail investors getting into that -- and the prices didn't budge.
(It was probably a mistake to come out with the Model 3, a sedan, before the Model Y, a crossover).
Maybe. But it seems Tesla has realized very significant production efficiencies on the Model Y contra the Model 3, and given the expected larger volume on the former, it's a big advantage that these design lessons were learned on a model that will carry less of their income.
Changing tooling and production processes for a product that already exists is a very painful strategic gambit. Remember that Tesla's pipeline is bigger than their current offerings; that kind of distraction wouldn't be healthy for their long-term growth.
Greater cash flow from Model Y due to design/manufacturing efficiencies might be a critical strategic advantage.
1. People are worried about their stock investments losing value due to the Covid economy.
2. Some people can't imagine putting their money in anything but stocks.
3. Ergo, there's a lot of demand for stocks that are familiar to casual investors and feel relatively safer from the effects of Covid.
Tesla are doing OK now, (kind of) breaking even, and making a decent number of cars. I think most would agree they're more solid now than ever before, and it seems like they're probably here to stay. But much more importantly we have to look at what they could be doing in 5-10 or 20 years.
Often people say Tesla isn't anything near the behemoth that is Toyota (true), and their stock shouldn't be higher than Toyota's. Toyota now make just under 9 million cars per year worldwide [1], exactly the same as they made in 2007.
In 2007 their share price was ~$75USD and now it's roughly similar. While they make a ton of cars and are profitable, they're not growing or really doing anything drastically different to almost 15 years ago. It's very likely in 10 or 15 more years they'll still be trundling along, doing the same things, making a similar number of cars. That's solid and good, and their stock price reflects that.
Tesla, on the other hand, are going all out for expansion. With the new factory going up in Germany, and one about to be announced in the USA for Cybertruck, it seems like they have no intention of slowing down, and plan to continue to grow extremely rapidly. In 10 years they may be making as many cars as Toyota is now. In 20 years they might be twice the size of Toyota (in terms of units produced).
Whether you believe they can pull that off or not is a matter of speculation that isn't worth getting into. That "guess the future" is exactly what we're seeing in the stock price. Toyota's stock price is not skyrocking because they're not doing anything radical, and aren't growing exponentially. On the other hand Tesla's stock price is skyrocketing, which we can read to mean a huge number of investors think they can pull off massive growth.
Of course time will tell, and in the mean time we can all gamble on what we think will happen.
(Note - I haven't even touched on Tesla's plans for self-driving, their "revolutionary" new battery chemistry, home storage, large scale storage or whatever else they're (maybe) cooking up. Also important is the inevitable extinction of the internal combustion engine. Those are heated topics of disagreement, but again, the fact the stoke price is climbing so fast shows people think Tesla have a very bright future)
[1] https://www.statista.com/statistics/267272/worldwide-vehicle...
Or what just park 20% of your portfolio in airlines and wait. Telsa is up 200% for no reason at all since crash. AAPL is up 27% YTD, because shutting down most of the planet somehow led to 27% growth.
Or we can look at it another way, since US printed ~25% of annual GDP in 'free money' and USD remains the primary method of exchange, we are all trading in dollars that are worth 25% less, so nothing has changed but a buffer to pad numbers on balance sheets until the wheels start turning. Something that was done too late in 2008.
And to disillusion people, its not that hard to pick stocks, and no the people at funds dont tend to be any better than you at their jobs. The industry is ran on finding and exploiting market inefficiencies, insider information, and hype. Watch MSNBC for a day and start guessing the days when DJI dips based on Covid coverage the day before.
It's called a short squeeze.
Investors have only realized the credibility of the über Tesla bulls in the last year or so, taking the stock from 5 years of stagnation into a valuation that assigns a significant probability of this happening.
It could certainly run ahead of the ideal probability-weighted likelihood of success for a bit. Also, with the likely S&P500 inclusion triggering a float contraction due to $25 billion of index funds forcibly buying at any cost, a latent buying pressure from $20 billions of short interest and a ~$50 billion actively managed S&P-benchmarked active funds that might buy, a lot can happen in the next few months. The discount rate for "Tesla has a significant probability of being in the position of Apple in 10 years" is not obvious.
This is not some random bubble obviously fueled by braindead retail investors.
#1 Interest rates are as low as they have been in an extremely long time, people/institutions want higher returns so they are putting money into vehicles with higher returns(stocks).
#2 Given the Govt./Treasury has been printing money like crazy dealing with the pandemic, money in cash is not great, stocks offer better returns.
#3 Given sports are mostly shut down(primarily in the US) sports betters are putting money into stocks instead and betting there so to speak.
#4 People are using their stimulus checks extra unemployment money to invest in stocks.
All of these don't seem to jibe, and alot of these stocks seem similar to what as known as a 'melt-up' which precedes a meltdown, see 2000's tech and 2008 financial crisis. I hope that is not the case but Tesla jumping 10-14% a day doesn't seem healthy for the stock and the stock market in general and something very strange is going on.