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Businesses The Almighty Buck

Tesla To Be Added To S&P 500 Index (coindesk.com) 56

Posted by BeauHD from the better-late-than-never dept.
Tesla is officially going to join the S&P500, sending its stock price soaring as much as 12% -- adding over $40 billion in market capitalization to the automaker. Electrek reports: The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is basically a representation of the US stock market, and it is often updated to add growing companies in order to better represent the market. The indice did a reshuffle in September, but Tesla was surprisingly not included.

Now the S&P has announced that Tesla will be included in the next reshuffle coming in December: "On November 16, 2020, S&P DJI announced that TSLA will be added to the S&P 500 effective prior to the open of trading on Monday, December 21 to coincide with the December quarterly rebalancing effective date." They didn't disclose which company is going to by taken out of the indice now that Tesla is being included. It will be announced closer to the reshuffle.

Tesla's inclusion is so significant that the S&P is seeing feedback on who it should be handled: "Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date." In semi-related news, Tesla has stopped selling the $35,000 version of the Model 3 altogether with the new 2021 model year refresh.
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Tesla To Be Added To S&P 500 Index More

Tesla To Be Added To S&P 500 Index

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  • Sigh (Score:5, Insightful)

    by Whateverthisis ( 7004192 ) on Monday November 16, 2020 @06:41PM (#60732322)
    I would say that Wall Street should know better than allowing a stock with a P/E of 820 into the index, but then again I worked in Wall Street during the dot.com bubble and watched as a fresh-faced college graduate as brokers and analysts with a straight face lauded the fortunes of the eggs.com IPO and how geocities was going to be the future of the economy.

    Tesla's done some amazing things, but they're priced today based on what people think they'll accomplish in 15 years. A lot can happen between then and now, including car companies who actually have the financial resources and profitability to deploy en masse what Tesla is doing. Just seems a bit crazy to price in the hype of what people think they're going to do vs. what they've actually achieved.

    Tesla has achieved a lot, so I don't want to rain on their parade, but they just don't have fundamentals to justify this.

    • Re: (Score:2)

      by waspleg ( 316038 )

      Yeah. This is ridiculous and also means they will get a fuck ton more money from 401K and 403Bs who have no clue what they're invested in.

      • Re:Sigh (Score:4, Insightful)

        by saloomy ( 2817221 ) on Monday November 16, 2020 @07:29PM (#60732462)
        Suggesting that a company is not valuable and / or worthy of investment simply because you don't understand metrics beyond a P/E ratio is both stupid and dangerous. Amazon famously didn't have a P/E ratio because it invested in infrastructure, distribution, R&D for new products and services, which all amounted to growth focused strategy as opposed to converting into a cash-cow. Tesla is a vastly different company than say AT&T, which has a reasonable P/E and throws off a dividend. The reason Tesla has such a high multiple is because of the heavy insfrastructure costs related to a charging network, development of new (and very expensive) battery production plants, and car manufacturing facilities, and R&D into autonomous vehicles. Their investments are rewarded or punished in the market based on expectations on returns, which obviously the market thinks will be very high. the S&P will be more valuable because of Tesla's inclusion, as will those 401k portfolios
        • You basically just contradicted yourself by saying Amazon invested into infrastructure and R&D so it had a low P/E. Then you said that Tesla has costs of infrastructure and R&D so has a high P/E.

          The P/E is high because the stock is very desirable, it is desirable because it is desirable. It is a self feeding loop. No one is expecting profits or a dividend anytime soon to justify that desire. As long as investors think that future investors will value the stock higher the loop will continue to fee
          • Amazon didnâ(TM)t have a P/E ratio because it was unprofitable, or when it did generate profit it was silly high P/E ratio. Iâ(TM)m contradicting the parent comment that high P/E ratios make for poor investments, sighting Amazon as an example for counter argument. Your reading comprehension skills could use some brushing up.

        • Re: (Score:1, Interesting)

          by jitibex246 ( 7384818 )
          Ah the old "Amazon lost money for years, thus every company who loses money is the next Amazon" diatribe.
          • Amazon is an example of a company with a healthy fiscal outlook while burning cash in R&D. Some companies arenâ(TM)t looking for P/E when growth mode is the story. Tesla (like Amazon was) in that growth mode. Not everyone without a P/E is.
        • Tesla is selling cars now. They don't sell them at a profit; they're profiting from selling tax credits. That will run out. Meanwhile, if you claim they're "investing in infrastructure", their gas-engine producing competition oustrips their infrastructure 100 to 1, because they literally make 1% of the number of cars sold than their competition.

          There's a lot more to a stock than P/E, but it's usually a good simple place to start a comparison to other companies in a similar place.

          • Re: (Score:2, Insightful)

            by Rei ( 128717 )

            Tesla is selling cars now

            And many other business lines, most of which are growing faster than their auto business, which in turn averages ~50% YoY growth.

            They don't sell them at a profit

            Auto margins are over 27% with regulatory credits and over 22% without credits - staggeringly good numbers for the industry.

            they're profiting from selling tax credits

            Despite being a company undergoing rapid growth (which hinders profitability through many mechanisms), Tesla has positive GAAP net income and extremely positive

        • Re: (Score:1)

          by Rei ( 128717 )

          Indeed. P/E ratios are not supposed to be used to evaluate rapidly-growing companies, for many different reasons, and anyone who would use them as such is just exposing their ignorance and has no business managing investments. This is such a well known fact that other formulas have been specifically created to take growth into account to remedy this weakness [wikipedia.org]. Even that is weak because it neglects the profit-hindering effects of the rapid growth itself; it simply allows you to account for future scale.

          Furt

      • Re: (Score:2)

        by ncc74656 ( 45571 ) *

        Yeah. This is ridiculous and also means they will get a fuck ton more money from 401K and 403Bs who have no clue what they're invested in.

        If you're invested in index funds, all this means is that one of the 500+ stocks your funds are in is getting replaced with TSLA. (As it happens, the index ETF that my Roth IRA is in already includes TSLA among the 992 stocks it holds.) One stock isn't likely to cause the fund to make big moves by itself. Even the likes of AAPL, MSFT, or AMZN (the current top three) a

    • I would say that Wall Street should know better than allowing a stock with a P/E of 820 into the index, but then again...

      Tesla has achieved a lot, so I don't want to rain on their parade, but they just don't have fundamentals to justify this.

      I'm new at investing. What's the formula to use to determine whether a company is at the right p/e, or whether it's too high (or low)?

      By which I mean, what numbers do I put together, and what operations do I perform on the numbers to come up with the optimal value?

      If you have time, can you explain what p/e actually measures? I mean, I know how it's calculated, but just as "gallons per mile" is a measure of efficiency, price divided by earnings is a measure of... what exactly?

      • Outlook for growth, High price/earnings means shareholders thing the company's earnings will grow. Otherwise, they would sell.

      • Re: (Score:1)

        by Anonymous Coward
        put it this way. a P/E for bluechip companies tends to be in the 10-30 range. above that you are looking at companies with expectations of large amounts of growth and potential. Above 100 is getting towards the WTF range where you need to be on an exponential growth curve to justify. above 500 is simply insane. basically the price of tesla is 820 times what they earn in a year.
      • its a measure of value vs what they earn. A company with no growth potential needs to have a low PE to be a worthwhile investment as you are not going to get any capital growth. A company with a very high PE you are expecting the company to grow rapidly. A very very high PE would be something like 100. 820 means basically they are priced at what people think the company will grow into in 10-15 years....maybe. So you are basically paying today what you think the company will be worth in 15 years if everythin
      • Let's use your miles per gallon example. If I told you a vehicle cost $25,000 and got 30 mpg, should you buy it?

        Answer: you cannot possibly say. What kind of vehicle is it? How much can it carry? How much longer can it be expected to last? What resale value does it have?

        So it is with P/E ratio. Like you said, it's just a ratio that only reflects the two values that go into it. There are countless other factors that might make a given P/E great or terrible.

      • Everyone gave you some pretty good analogies, so I'll just add some stuff here. P/E is Price per Earnings. How much does it take to buy $1 of company earnings? A 15 P/E means the stock is valued at $15 per $1 of earnings. Eventually companies get so big that they plateau in their ability to grow, and then it's solely about thier ability to sell products, the growth of their market, etc, which means companies tend to fall into the 15-30 P/E range.

        Stock price is affected by many things that makes it di

      • Re: (Score:2)

        by Rei ( 128717 )

        P/E isn't supposed to be used for rapidly growing at all. There's an inherent assumption of steady-state in a P/E ratio.

        • Re: (Score:2)

          by Rei ( 128717 )

          Let's say you had a company with precisely $1B of income and $1B of expenses. What's their P/E ratio? It's infinite.

          Let's say they had $1B + $1 of income and $1B of expenses. But the next quarter they have $1B + $100 of income and $1B of expenses. OMG, they just cut their P/E ratio a hundredfold in a single quarter! Of course, all they did was get an extra $99 in revenue, but hey, P/E cut a hundredfold!

          P/E ratios don't take into account growth.

          P/E ratios don't take into account sacrifices to profitabilit

      • A high P/E doesn't mean you'll lose money investing in it, as long as the hype holds you can make quite a bit riding the wave in the short term. The trick to high P/E stocks is to get out before everyone else realizes that the business will never be able to live up to the market's expectations. These are not long term investments. You don't put your retirement investments into these and sit on them for 30 years, unless you like a good gamble.

    • That's what you're missing:
      EVs (and their batteries and drivetrains in particular). and the increasingly automated factories for producing them en masse, are relatively early-revision technologies compared to ICE vehicles and their manufacturing. Management, and engineering execution, of both production and continuous rapid innovation and improvement (of the product and the factories) are the keys to TESLA's ability to achieve, maintain, and grow its competitive lead in EVs, and to achieve true cost, perfo
      • Wow. Literally Tesla's execution is the opposite of stellar. They are not profitable on a per-unit basis. Their factory launch was dismal. They've missed most (not all) of their target unit sales. And the tech is still a long ways from proving to be disruptive and solely owned by Tesla. Their units sold are dwarfed compared to the car market at large, and EVs are ramping up and being sold in comparable units by car companies who have the factories already to scale whereas Tesla must build those factor
        • Well we'll see. We're at something like 0.1 % of the small vehicle fleet and essentially 0% of the larger vehicle (trucks) fleet electric now. Effective climate change policy demands we get to closer to 50% of those fleets electric within 10 years. To add some realism I'll accept an assumption of 50% of new vehicle sales by that time, instead, on the way to later achievement of 50% then up to 90% of fleets.
          So that's around a 20-fold EV marketshare increase from today, for 2030.
          Tesla's 18% of global EV sales

    • Re: (Score:1)

      by NFN_NLN ( 633283 )

      > lauded the fortunes of the eggs.com IPO

      For the first time in years I actually WANT to hear what someone has to say on slashdot. What is the story on eggs.com?

    • Re:Sigh (Score:4, Insightful)

      by im_thatoneguy ( 819432 ) on Monday November 16, 2020 @08:47PM (#60732644)

      , including car companies who actually have the financial resources and profitability

      Tesla just added nearly the market cap of GM in after hours trading today. If they needed to raise tens of billions of dollars they could do so overnight by selling more stock. They also have $15B in cash on hand.

      I don't know when or if Tesla will justify its evaluation, but it won't be 15 years if it happens. If Tesla can drop the price of batteries as much in the next 3 years as they hope to with improved manufacturing processes and vehicle design then there'll be absolutely zero reason to buy a gas powered car in 5 years. And that generation of vehicle when used will also start to make economical sense to simply sell whatever you have and buy a used electric for the total cost of ownership savings. TCO for a Chevy Bolt is already arguably lower than a civic but with a higher up-front cost.

      And that all ignores what will happen with autonomy to the entire transportation market. We're far less than 15 miles from robotaxis. Waymo is running them in limited trials today. Cruise is about to deploy them in San Francisco. Tesla has the autopilot play. It's going to definitely shake up the market just like the Model 3 totally shook up the premium sedan market.

      The problem is the same problem Chevy faces with the Bolt. In order to sell it they have to sell it at a massive loss. Meanwhile Tesla is making a profit on each car they sell. So if Chevy were to apply their Bolt strategy to switch their full fleet over to electric they would no longer be making $14B in profit per year. They're trapped promoting and selling their profitable brands which are also their legacy-dead-end products. The better they compete with Tesla in the EV space, the more money they lose. It's not impossible to transform your company but we have lots of past evidence of companies refusing to cannibalize their short term profit for long term survival.

      Look at a company like Canon. They had a clear lead in digital photography. But they had to stick to their professional photographer market channels and the amateur photography products kept improving in quality and weren't tied to legacy lens mounts. Now Sony not only commands the smartphone market for sensors but they have also forced Canon to abandon their legacy EF mount lens line and chase Sony in the mirrorless market. That transition only took 6 years. Canon can try to convince customers to embrace Canon's new R-Mount mirrorless system, but if you're already replacing your existing inventory of lenses, why pick Canon when the Sony cameras have superior sensors?

      When customers are switching from ICE to EV they're going to look around like they probably never have in a generation to see if maybe their current loyal brand affiliation is still valid in this new EV landscape.

      I don't know if Tesla will be able to win that opportunity, but it's going to be over and done within 10 years one way or another. And shortage of cash will not be what caused Tesla to fail. Tesla spent $1.6B on Shanghai and they are on track to producing 550k vehicles a year.

      At its peak GM sold 10 million vehicles in a year. 10 million / 0.5m = 20 factories equivalent to shanghai * $1.6B = $32B. Tesla has half of that in cash. And their capital efficiency for manufacturing continues to improve. It'll be interesting to see how Model Y efficiency improves with the Berlin casting. It's reasonable to see a path to achieving 10 million vehicles a year with just the $15B in cash on hand without tapping their market cap for more cash.

      By comparison VW expects to spend $41 Billion on EVs over the next 5 years. And sell on average 2.6 million EVs a year through 2030. Tesla will hit that target at their current pace of expansion in 2022 or 2023, likely 2-3 years before VW. So even the world's largest automaker isn't on track yet to beat out Tesla and they're the best positioned and they intend to burn nearly $50B just to be in the race.

      • Re: (Score:2)

        by AmiMoJo ( 196126 )

        Batteries won't save Tesla. They are already behind other manufacturers like LG Chem on cost and are unlikely to catch up. Their batteries are high end, high performance, not economical.

        A lot of Tesla's over-valuation is based on their self-driving technology. It's still a long, long, long way from being ready and there is a very real risk that someone else will get there first. Waymo is a long way ahead of anyone else but there are many contenders in that space, many of them in front of Tesla.

        Self driving

      • They will not hit that pace. They need to scale manufacturing by 100X to match current companies; that's a tremendous amount of factories to build. Their current build process in Fremont is still a mess, although it's not under a giant tarp anymore in the parking lot. They make many of their own parts, which is going to burn them big time when cars start hitting miles where regular maintenance becomes an issue, rather than relying on the very well established supply chain.

        THey have not set themselves

      • Re: (Score:2)

        by Myrdos ( 5031049 )

        We're far less than 15 miles from robotaxis.

        Wake me up when it's a quarter mile, tops. And even then, only when it's not raining.

    • Given the fact that Tesla has the best balance sheet of all the car companies I would say its the legacy car companies who lack the funds to invest in EVs. What you forget is that all legacy car companies have unions and large off book liabilities for pensions and retiree healthcare. If they actually stated proper financials all of them are bankrupt So throwing shade on Tesla saying they dont have the funds to scale is just for lack of a better word - stupid. Last year I wanted to buy a Hyundai Kona. it
      • .... I don't think you know how to read a balance sheet, but Toyota's balance sheet and Honda's balance sheet is way better looking than TSLAs. Particularly when you look at the balance sheet in combination with the P both Toyota and Honda are generating great sales and respectable growth with a better debt ratio.
    • Well part of the point of index funds is not to have human deciding anything ; I know the S&P500 is a bit different as in the end its decided by committee; however if a company fits the rules of the index , its going to get included. Tesla only qualified to be included last summer and some people were surprised that it wasn't included in the S however I think the reason was to give some fund managers time to figure out how to do such a large re-balance, they announced it a month early this will give in

    • Well unlike the .COM bubble Tesla does have a strong business model. They are producing products at a profit, which are in demand.
      Unlike many other companies. Tesla needs a large infrastructure to operate. Factories, Service Centers, Charging Stations... So they will be in debt for a while. However much of that infrastructure can be sold off if needed, so it isn't bad debt (or as bad debt) as if the case of bankruptcy there are a lot of assets that can be liquidated.

      The Tesla Short Sellers, have been usin

      • OK, just to be clear here, Tesla does not make money on cars. They earn tax credits because the government incentivizes zero emissions, which earns them tax credits they can sell to other companies. GAAP allows you to recognize that as revenue, but it's a finite source of income based on government regulation that will dry up and has already dried up in several places.

        In Q2 2020, Tesla reported $104M in Net Revenue. But they reported $428M in tax credit revenue, which has no "Cost of Revenue" attache

  • Just in time (Score:2, Insightful)

    by quonset ( 4839537 )

    The government has widened its probe into Tesla's failing touchscreens [go.com], something previously reported [slashdot.org] on here.

    A preliminary investigation was opened in June covering 63,000 Model S vehicles with screens controlled by flash memory devices with finite lifespans based on the number of program and erase cycles. The screens can fail prematurely because the memory can wear out. That investigation has now been expanded to 159,000 vehicles.

    • Re:Just in time (Score:4, Informative)

      by Cyberax ( 705495 ) on Monday November 16, 2020 @07:06PM (#60732392)

      The screens can fail prematurely because the memory can wear out.

      Tesla has sent out a message couple of weeks ago that they are going to replace screens free of charge if this happens.

      • Re:Just in time (Score:5, Funny)

        by MightyMartian ( 840721 ) on Monday November 16, 2020 @07:14PM (#60732420) Journal

        Goddman you! And I was going to short their stock. Now look what you've done. Quit reporting good news about Tesla. Let's have another article about how Elon Musk mixes the ashes of his dead relatives in with his marijuana and smokes them while masturbating to tentacle porn!

        • Here's a list [autonxt.net] of recent recalls. Feel free to short any of those stocks.

          Tesla has recalls, and so do other car manufacturers.

          Tesla is still the most shorted company in history, so it's important that every little mistake they make gets amplified on this site... because reasons.

        • Re: (Score:2)

          by ghoul ( 157158 )
          Elon's got Covid. Dont buy Teslas as they have cooties. Satisfactory negative story?

  • I would think the Tesla stock has been a little too volatile to include in any index. Don't really want the S&P rising and dropping because Elon decides his cars have too many wheels

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