Author Topic: The effect of Tesla being added to the S&P 500. Our Index funds...  (Read 9888 times)

Jack0Life

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I'm no expert on the subject so I want all the gurus to chime in as this will greatly affect most people who's investments are all on Indexes.
This is the gist of what I'm thinking. I might be totally off base here.
Speculators are driving up Tesla in anticipation of Tesla being added to the SP500 knowing that by Dec 18th, all these portfolios will have to add Tesla to their funds. We are talking about ~$100 billions here.
So after Dec 21st when Tesla are added to all the Index funds, it it going to plunge because speculators will sell off ??
Is it wise for us to move all our Index funds to the sideline by the 18th and let the Index settle down ??
A good comparison would be Yahoo in 1999 when it's share jumped up 64% before being added to the SP500 and then afterward the SP500 funds suffered. I know I know it's Yahoo but they didn't decline till years later.
What do you guys think ??
« Last Edit: November 30, 2020, 11:48:50 AM by Jack0Life »

joleran

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #1 on: November 30, 2020, 11:53:32 AM »
Well, now I know that you know that speculators know that they know they will sell off because they know a big spike will happen on joining the index, but other people know that I know that you know.

Tongue in cheek, but the market is full of stories starting with "look at this clear and predicable pattern, I'm sure to win!" and ending in "I guess it was already priced in".

In short, fighting potential volatility potentially produced from speculation with meta-speculation doesn't seem like the best approach.

v8rx7guy

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #2 on: November 30, 2020, 11:57:26 AM »
I'm no expert on the subject so I want all the gurus to chime in as this will greatly affect most people who's investments are all on Indexes.
This is the gist of what I'm thinking. I might be totally off base here.
Speculators are driving up Tesla in anticipation of Tesla being added to the SP500 knowing that by Dec 18th, all these portfolios will have to add Tesla to their funds. We are talking about ~$100 billions here.
So after Dec 21st when Tesla are added to all the Index funds, it it going to plunge because speculators will sell off ??
Is it wise for us to move all our Index funds to the sideline by the 18th and let the Index settle down ??
A good comparison would be Yahoo in 1999 when it's share jumped up 64% before being added to the SP500 and then afterward the SP500 funds suffered. I know I know it's Yahoo but they didn't decline till years later.
What do you guys think ??

I'm just glad I chose the total stock market index fund (VTSAX) rather than the S&P500 index way back when.  I've been riding the Tesla wave all the way up rather than having to buy in high like S&P500 index holders are going to have to do shortly.   Just a random thing that has been on my mind a lot lately regarding this subject.  As to your question, I think that the addition to the S&P500 and the risk of people dumping once it's added has already been priced in to the current price of TSLA... I think it's too late to be trying to strategize.

Jack0Life

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #3 on: November 30, 2020, 02:56:37 PM »
I mean this is no ordinary inclusion to the SP500. Tesla will be the 6th largest company when it joins and that's going to be a huge problem for all the Index funds out there.
Last time this big of a company joined the SP500 was Yahoo. After that both Yahoo and the SP500 tanked. This was end of Nov 1999. Sure the Dotcom bust contributed to that.







joleran

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #4 on: November 30, 2020, 03:50:57 PM »
I'm just glad I chose the total stock market index fund (VTSAX) rather than the S&P500 index way back when.  I've been riding the Tesla wave all the way up rather than having to buy in high like S&P500 index holders are going to have to do shortly.   Just a random thing that has been on my mind a lot lately regarding this subject.  As to your question, I think that the addition to the S&P500 and the risk of people dumping once it's added has already been priced in to the current price of TSLA... I think it's too late to be trying to strategize.

The last 10 years of returns say "that's nice" as VOO outperformed VTI (not a ton, but a bit) over the last 1,2,5,10 years.  The large cap outperformance erases the aggregate small cap underperformance recently, and TSLA doesn't seem to have made a difference overall.

I mean this is no ordinary inclusion to the SP500. Tesla will be the 6th largest company when it joins and that's going to be a huge problem for all the Index funds out there.
Last time this big of a company joined the SP500 was Yahoo. After that both Yahoo and the SP500 tanked. This was end of Nov 1999. Sure the Dotcom bust contributed to that.

And everyone knows that and is factoring it in!  Or maybe not and it will be far worse than that!

dandarc

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #5 on: November 30, 2020, 04:10:22 PM »
Market cap of Tesla ~$500 billion. Market cap of S&P 500 today ~30 trillion.

Even if all the speculators dive out to the point TSLA goes to zero immediately, that's less than a 2% drop in the S&P 500. Then anything so obvious as this gets hedged out to a large degree. The largest funds, I'm sure, are already invested in various derivatives to minimize the impact of them "being forced to add TSLA to their portfolios".

mistymoney

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #6 on: November 30, 2020, 04:23:20 PM »
who's getting kicked out??


asking for a friend. :)

v8rx7guy

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #7 on: December 01, 2020, 11:47:09 AM »
OP are you also on Reddit?  I just got a notification about this exact subject on Reddit, using the same chart, etc.

MustacheAndaHalf

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #8 on: December 01, 2020, 01:04:00 PM »
The S&P 500 committee are going to add Tesla at full market cap weight?!
They pushed Tesla stock up +5% in Friday's trading, according to this article.
https://www.wsj.com/articles/tesla-to-enter-s-p-500-at-full-weight-in-december-11606780897

Earlier in 2020, the S&P 500 committee delayed an update that would have dropped many recently fallen stocks.  Which made sense - it reduces disruption and volatility... so who is making the decisions now, and trying to cause disruption and volatility?

kenmoremmm

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #9 on: December 01, 2020, 02:24:50 PM »
I'm just glad I chose the total stock market index fund (VTSAX) rather than the S&P500 index way back when.  I've been riding the Tesla wave all the way up rather than having to buy in high like S&P500 index holders are going to have to do shortly. 

is this true? at what point in time did VTSAX add TSLA to the fund? i'd assume TSLA already made a significant gain in it's share price and # of shares before it even sniffed VTSAX, thus mitigating a large % of the gains. right?

i have a good amount of VTSAX, so i'm generally curious. it looks like it's the 14th largest holding:
https://investor.vanguard.com/mutual-funds/profile/portfolio/VTSAX/portfolio-holdings

v8rx7guy

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #10 on: December 01, 2020, 02:31:22 PM »
I'm just glad I chose the total stock market index fund (VTSAX) rather than the S&P500 index way back when.  I've been riding the Tesla wave all the way up rather than having to buy in high like S&P500 index holders are going to have to do shortly. 

is this true? at what point in time did VTSAX add TSLA to the fund? i'd assume TSLA already made a significant gain in it's share price and # of shares before it even sniffed VTSAX, thus mitigating a large % of the gains. right?

i have a good amount of VTSAX, so i'm generally curious. it looks like it's the 14th largest holding:
https://investor.vanguard.com/mutual-funds/profile/portfolio/VTSAX/portfolio-holdings

I know it was for sure in there last year because I remember it was on the 2nd or 3rd page of that same VTSAX holdings list... now it's in the top 15!  I don't see why it wouldn't have been included since TSLA went public... it's the total stock market index fund afterall?  Someone can correct me if I'm wrong.

bacchi

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #11 on: December 01, 2020, 03:32:24 PM »
I'm just glad I chose the total stock market index fund (VTSAX) rather than the S&P500 index way back when.  I've been riding the Tesla wave all the way up rather than having to buy in high like S&P500 index holders are going to have to do shortly. 

is this true? at what point in time did VTSAX add TSLA to the fund? i'd assume TSLA already made a significant gain in it's share price and # of shares before it even sniffed VTSAX, thus mitigating a large % of the gains. right?

i have a good amount of VTSAX, so i'm generally curious. it looks like it's the 14th largest holding:
https://investor.vanguard.com/mutual-funds/profile/portfolio/VTSAX/portfolio-holdings

I know it was for sure in there last year because I remember it was on the 2nd or 3rd page of that same VTSAX holdings list... now it's in the top 15!  I don't see why it wouldn't have been included since TSLA went public... it's the total stock market index fund afterall?  Someone can correct me if I'm wrong.

Correct or nearly so. VTSAX contains almost all of the listed domestic stocks in the CRSP database. See https://etfdb.com/index/crsp-us-total-market-index/.


« Last Edit: December 01, 2020, 03:34:34 PM by bacchi »

PDXTabs

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #12 on: December 01, 2020, 04:52:30 PM »
Yup, I own FSKAX, VTSMX, and VT. All of them hold it. In fact I would estimate that at this point ~0.5% of my net worth is Tesla stock even though I don't directly own a single share.

v8rx7guy

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #13 on: December 01, 2020, 05:02:39 PM »
Yup, I own FSKAX, VTSMX, and VT. All of them hold it. In fact I would estimate that at this point ~0.5% of my net worth is Tesla stock even though I don't directly own a single share.

Same.  My FOMO was somewhat relieved when I found this out.  Wish it was more, but glad I didn't completely miss the rocket ship that has been TSLA stock.
« Last Edit: December 01, 2020, 05:05:00 PM by v8rx7guy »

v8rx7guy

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #14 on: December 01, 2020, 05:05:39 PM »
I'm just glad I chose the total stock market index fund (VTSAX) rather than the S&P500 index way back when.  I've been riding the Tesla wave all the way up rather than having to buy in high like S&P500 index holders are going to have to do shortly.   Just a random thing that has been on my mind a lot lately regarding this subject.  As to your question, I think that the addition to the S&P500 and the risk of people dumping once it's added has already been priced in to the current price of TSLA... I think it's too late to be trying to strategize.

The last 10 years of returns say "that's nice" as VOO outperformed VTI (not a ton, but a bit) over the last 1,2,5,10 years.  The large cap outperformance erases the aggregate small cap underperformance recently, and TSLA doesn't seem to have made a difference overall.

Then maybe you're overthinking this??

joleran

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #15 on: December 01, 2020, 08:39:03 PM »
I'm just glad I chose the total stock market index fund (VTSAX) rather than the S&P500 index way back when.  I've been riding the Tesla wave all the way up rather than having to buy in high like S&P500 index holders are going to have to do shortly.   Just a random thing that has been on my mind a lot lately regarding this subject.  As to your question, I think that the addition to the S&P500 and the risk of people dumping once it's added has already been priced in to the current price of TSLA... I think it's too late to be trying to strategize.

The last 10 years of returns say "that's nice" as VOO outperformed VTI (not a ton, but a bit) over the last 1,2,5,10 years.  The large cap outperformance erases the aggregate small cap underperformance recently, and TSLA doesn't seem to have made a difference overall.

Then maybe you're overthinking this??

I'm just saying you did not win by buying VTSAX over the time period, TSLA or no TSLA, so it doesn't make sense to be glad you chose a more or less comparable but slightly less performing asset in retrospect.  I entirely agree it was a good idea to hold VTSAX over the S&P500, but it didn't pan out.

EricEng

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #16 on: December 03, 2020, 09:43:02 AM »
Telsa has ran up about 45% since the announcement.  It was already way overvalued before announcement.  I do not like the thought of buying a stock at such a premium.  I also don't like the downward pressure it will create on all the other SP500 stocks that have to be sold so they can buy Tesla.

I've personally moved my sp500 exposure to VO (mid cap), VB (small cap), and VEU (world - US).  I will probably add sp500 back in January or Feb after it settles down and all the Tesla speculator have cashed out. Had I been thinking, I would have bought call options on Tesla right after the announcement with expiration in Jan.

Scandium

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #17 on: December 03, 2020, 10:47:43 AM »
Vanguard has a process for adding stock to the index over time, they don't just buy billions of TSLA the day it's added (Months I believe, but you'll have to google for details as I don't remember). So any effect of S&P "pump & dumb" will be diluted. And even if they did, then everyone would sell out of the index just before people dumb TSLA, but then the stock holders would sell earlier..etc etc.

v8rx7guy

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #18 on: December 03, 2020, 11:23:21 AM »
Vanguard has a process for adding stock to the index over time, they don't just buy billions of TSLA the day it's added (Months I believe, but you'll have to google for details as I don't remember). So any effect of S&P "pump & dumb" will be diluted. And even if they did, then everyone would sell out of the index just before people dumb TSLA, but then the stock holders would sell earlier..etc etc.

Does that mean that there could be a deviation between a S&P500 tracker such as .inx and VOO?

EricEng

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #19 on: December 03, 2020, 01:44:59 PM »
Vanguard has a process for adding stock to the index over time, they don't just buy billions of TSLA the day it's added (Months I believe, but you'll have to google for details as I don't remember). So any effect of S&P "pump & dumb" will be diluted. And even if they did, then everyone would sell out of the index just before people dumb TSLA, but then the stock holders would sell earlier..etc etc.

Does that mean that there could be a deviation between a S&P500 tracker such as .inx and VOO?
Source for this?  From what I've read most are following SP500 instructions to do it all in one go instead of tranches which will be on end of day Dec 18 (friday) and start of Dec 21(Monday).  That would be nice if Vanguard did that, but like he says it would certainly create a deviation between sp500 trackers.

EricEng

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #20 on: December 09, 2020, 11:54:46 AM »
I do see the Tesla discussion thread, I'm just surprised no one is concerned about this vastly overpriced stock going into their sp500. As the market cap keeps inflating it will represent an ever larger percent of the sp500 portfolio.  I feel like all the robinhood speculators are going to profit off the retirement fund groups by forcing them to buy their inflated garbage.

WhiteTrashCash

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #21 on: December 09, 2020, 11:58:05 AM »
I think the difference between Tesla and Yahoo is that Tesla actually produces a product and not just any product, but a product in extremely high demand using technology that their competitors havenít come close to matching yet. Everything will be fine.

Travis

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #22 on: December 09, 2020, 06:00:57 PM »
I do see the Tesla discussion thread, I'm just surprised no one is concerned about this vastly overpriced stock going into their sp500. As the market cap keeps inflating it will represent an ever larger percent of the sp500 portfolio.  I feel like all the robinhood speculators are going to profit off the retirement fund groups by forcing them to buy their inflated garbage.

Anybody who has a total market fund has had Tesla since the beginning.  This means it'll show up in two more of my funds, but it's not like they're hitting the market for the first time ever.

ChpBstrd

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #23 on: December 09, 2020, 07:38:18 PM »
It's a good case for moving from a market-cap weighted ETF to an equal-weighted ETF. Unicorn avoidance is also a good case for moving one's S&P500 ETFs into broader market ETFs or diversifying into Ex-US ETFs. Some of us remember the late 1990's when the rationale was that the dot-com companies would keep raising money infinitely so therefore they couldn't go down.

EricEng

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #24 on: December 10, 2020, 06:42:23 AM »
I think the difference between Tesla and Yahoo is that Tesla actually produces a product and not just any product, but a product in extremely high demand using technology that their competitors havenít come close to matching yet. Everything will be fine.
Berkshire Hathaway has over 10 times the revenue and profits yet Tesla just passed them.

Even under the most astronomical optimistic growth for 15 to 20 years Tesla can't reach a point to justify that market cap.  Tesla competitors are within just a few years of catching up. Tesla also still isn't profitable without selling ever dwindling credits.  I'm not saying bad company, but not worth a tenth of this price even if they dominated car market.

PDXTabs

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #25 on: December 10, 2020, 12:05:15 PM »
Yes, it's the Musk fanboy put. But I'm waiting until Starlink goes public to hop on that train.

ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #26 on: December 10, 2020, 05:24:48 PM »
I think the difference between Tesla and Yahoo is that Tesla actually produces a product and not just any product, but a product in extremely high demand using technology that their competitors havenít come close to matching yet. Everything will be fine.
Berkshire Hathaway has over 10 times the revenue and profits yet Tesla just passed them.

Even under the most astronomical optimistic growth for 15 to 20 years Tesla can't reach a point to justify that market cap.  Tesla competitors are within just a few years of catching up. Tesla also still isn't profitable without selling ever dwindling credits.  I'm not saying bad company, but not worth a tenth of this price even if they dominated car market.

Few points here. Plenty of companies derive part of their profit margin from subsidies. Everything from sugar to oil is heavily subsidized. Seems odd to single Tesla out in this regard, especially considering ZEV credits are not a taxpayer funded subsidy. The ZEV credits are earned through or as a direct result of Teslaís core business (EVs). They are not a simple transfer of wealth from taxpayers like other industries receive. Teslaís so called competitors are forced to pay Tesla for these credits exactly because they are failing to create compelling EVs of their own in any significant quantity. Secondly, if you take away the ZEV credits, then itís only fair to also take out Muskís stock compensation from last quarter. Remove both, and Tesla is profitable even without ZEV credits last quarter. If you are going to discard EV credits because they are transient, then only fair to also discard Muskís one-off compensation payment as well. Lastly, the Tesla detractors always want to ignore that Tesla has only recently become profitable because they have and continue to plug billions back into the business to fuel their rapid, capital intensive growth. If Teals stopped building out superchargers, new factories and funding research and development they would be very profitable every quarter going forward. As a Tesla stock holder Iím glad Tesla is plugging profits back into the company to fuel future growth and capture market share.

Which brings me to the next point, you say the competition is coming in ďa few yearsĒ, but there is no evidence to support this. No ICE manufacturer is currently building multiple plants to manufacture EV batteries and vehicles at mass scale like Tesla. No ICE manufacturer is building out supercharger networks across North America, Europe and China like Tesla. No ICE company has even released specs for a vehicle that competes with current Tesla vehicles on range, price, performance, AND charging speeds. All of which ignores the fact that while these ICE companies try to catch up with todayís Tesla vehicles, Tesla continues to innovate and provide a moving target. The "Tesla Killers" have been promised for a decade or more now, and if anything, Teslaís moat has widened. 

The ICE majors have an impossible task. They need to simultaneously plug billions into developing and producing new EVs at scale, while competing against their own existing ICE product lines and satisfying current share holders demand for quarterly profits. No wonder no major has produced anything more than compliance vehicles at minimal scale (10s of thousands) with the possible exception of Nissan (LEAF).  How can they? For them to make the necessary investments to retool their manufacturing line, design new EVs from the ground up, build out charging infrastructure, procure battery supply, etc., they would have to sell their boards and share holders on several consecutive unprofitable quarters and suspension of dividend payments. Good luck! You canít serve two masters. Half the current ICE manufacturers will not survive this transition to electric.

« Last Edit: December 10, 2020, 05:30:04 PM by ColoradoTribe »

3toesloth

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #27 on: December 10, 2020, 05:47:25 PM »
Large major auto companies are already beating Tesla in China and Europe, competition is there already and winning. USA has lower demand for EVs because of lower gas prices and lower EV subsidies, if these things change then so will demand here. Hybrids make enormously more sense in the USA anyway. People can argue Tesla all day long but there is no reason to think that Tesla is capable of things that no other company is also capable of. Short of an exclusive patent or government mandated monopoly no company is likely to dominate long term.
 
Tesla is my canary in the coal mine. When it's bubble pops young folks (and old too) will realize that stocks can go down and they will panic sell like always happens. Just wish it will happen sooner than later.

ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #28 on: December 10, 2020, 07:05:59 PM »
Large major auto companies are already beating Tesla in China and Europe, competition is there already and winning. USA has lower demand for EVs because of lower gas prices and lower EV subsidies, if these things change then so will demand here. Hybrids make enormously more sense in the USA anyway. People can argue Tesla all day long but there is no reason to think that Tesla is capable of things that no other company is also capable of. Short of an exclusive patent or government mandated monopoly no company is likely to dominate long term.
 
Tesla is my canary in the coal mine. When it's bubble pops young folks (and old too) will realize that stocks can go down and they will panic sell like always happens. Just wish it will happen sooner than later.

Would love to hear the evidence that major auto companies are beating Tesla in China and Europe? Tesla sells every vehicle they make as fast as they can ramp production. So, EV consumers may be left with the decision to buy a ďcompetitorísĒ product tor wait for a Tesla. Tesla does not need 100 or even 50 percent of the addressable market to be wildly successful.  When Tesla makes a car they canít sell then you can tell us how the other car companies are ďwinningĒ.  Its a fact that Teslaís vehicle far and away offer the best combo of price, performance, range, and recharge rate (plus  a charging network). Tesla is doing things that no other car company has yet to do despite a decade to catch up.  But Iíll keep waiting for the Tesla killer...

3toesloth

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #29 on: December 10, 2020, 07:29:39 PM »
Would love to hear the evidence that major auto companies are beating Tesla in China and Europe? Tesla sells every vehicle they make as fast as they can ramp production. So, EV consumers may be left with the decision to buy a ďcompetitorísĒ product tor wait for a Tesla. Tesla does not need 100 or even 50 percent of the addressable market to be wildly successful.  When Tesla makes a car they canít sell then you can tell us how the other car companies are ďwinningĒ.  Its a fact that Teslaís vehicle far and away offer the best combo of price, performance, range, and recharge rate (plus  a charging network). Tesla is doing things that no other car company has yet to do despite a decade to catch up.  But Iíll keep waiting for the Tesla killer...
[/quote]
Sales and registration numbers are easily available if you look. Every car company sells every car they make. Wait times are very low for Teslas most places with prices being lowered continually. No company would lower prices if demand was sufficient, even Tesla with their "mission". Can't and won't are indistinguishable to outsiders to the company, as soon as margins for electric cars match ICE or governments compel companies to make them then all companies will make them. The majority of your argument is just recency bias, because Tesla is doing well now doesn't mean that is likely to continue or even to get much better which necessitates the high valuation.

ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #30 on: December 10, 2020, 07:54:43 PM »
Would love to hear the evidence that major auto companies are beating Tesla in China and Europe? Tesla sells every vehicle they make as fast as they can ramp production. So, EV consumers may be left with the decision to buy a ďcompetitorísĒ product tor wait for a Tesla. Tesla does not need 100 or even 50 percent of the addressable market to be wildly successful.  When Tesla makes a car they canít sell then you can tell us how the other car companies are ďwinningĒ.  Its a fact that Teslaís vehicle far and away offer the best combo of price, performance, range, and recharge rate (plus  a charging network). Tesla is doing things that no other car company has yet to do despite a decade to catch up.  But Iíll keep waiting for the Tesla killer...
Sales and registration numbers are easily available if you look. Every car company sells every car they make. Wait times are very low for Teslas most places with prices being lowered continually. No company would lower prices if demand was sufficient, even Tesla with their "mission". Can't and won't are indistinguishable to outsiders to the company, as soon as margins for electric cars match ICE or governments compel companies to make them then all companies will make them. The majority of your argument is just recency bias, because Tesla is doing well now doesn't mean that is likely to continue or even to get much better which necessitates the high valuation.
[/quote]

Every car company "eventually" sells every car they make, but not every car company has produced as many cars as they possible could produce for the length of their existence like Tesla to date. ICE manufactures have shuttered lines and entire factories at various points in their history and have parking lots full of inventory they sometimes sell at a loss just too unload. Again, Tesla does not engage in any of this and has not spent a penny on paid advertising or marketing.  Tesla sells every EV the make as fast as they make them despite the expiry of the US Federal tax credit that still benefits all the ďcompetitionĒ.

And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%). Tesla doesnít offer rebates or hold Labor Day sales. They donít rely on a service department to be profitable on vehicles they sell on slim margins like the big boys. 

Iíve heard your last sentence repeated for the last 10 years in various forms. Iíve made a lot of money betting on Tesla do to just that since I invested in 2013. 

3toesloth

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #31 on: December 10, 2020, 08:20:25 PM »
Every car company "eventually" sells every car they make, but not every car company has produced as many cars as they possible could produce for the length of their existence like Tesla to date. ICE manufactures have shuttered lines and entire factories at various points in their history and have parking lots full of inventory they sometimes sell at a loss just too unload. Again, Tesla does not engage in any of this and has not spent a penny on paid advertising or marketing.  Tesla sells every EV the make as fast as they make them despite the expiry of the US Federal tax credit that still benefits all the ďcompetitionĒ.

And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%). Tesla doesnít offer rebates or hold Labor Day sales. They donít rely on a service department to be profitable on vehicles they sell on slim margins like the big boys. 

Iíve heard your last sentence repeated for the last 10 years in various forms. Iíve made a lot of money betting on Tesla do to just that since I invested in 2013.
[/quote]
If Tesla has very profitable margins why aren't they profitable?
Tesla shuttered the Roadster.
Tesla does huge fleet sales end of every quarter, probably also at a loss.
When Tesla needs to start advertising costs will go up.
Don't need to run a sale when you continually lower prices.
What service department? When they add it again costs will increase.
Low margins and profitable with low valuation is preferred any day to unprofitable and high valuation. 5 quarters does not make a trend.
I'd like to know what Tesla is capable of besides cashing in subsidies and issuing shares that any other auto company is incapable of?

3toesloth

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #32 on: December 10, 2020, 08:26:58 PM »
Iíve heard your last sentence repeated for the last 10 years in various forms. Iíve made a lot of money betting on Tesla do to just that since I invested in 2013.
[/quote]
Stock price bro! is not a logical argument. People made tons on; RCA, Enron, cisco, Yahoo, Nicola, Nio, pets.com, ........

ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #33 on: December 10, 2020, 08:36:27 PM »
Every car company "eventually" sells every car they make, but not every car company has produced as many cars as they possible could produce for the length of their existence like Tesla to date. ICE manufactures have shuttered lines and entire factories at various points in their history and have parking lots full of inventory they sometimes sell at a loss just too unload. Again, Tesla does not engage in any of this and has not spent a penny on paid advertising or marketing.  Tesla sells every EV the make as fast as they make them despite the expiry of the US Federal tax credit that still benefits all the ďcompetitionĒ.

And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%). Tesla doesnít offer rebates or hold Labor Day sales. They donít rely on a service department to be profitable on vehicles they sell on slim margins like the big boys. 

Iíve heard your last sentence repeated for the last 10 years in various forms. Iíve made a lot of money betting on Tesla do to just that since I invested in 2013.
If Tesla has very profitable margins why aren't they profitable?
Tesla shuttered the Roadster.
Tesla does huge fleet sales end of every quarter, probably also at a loss.
When Tesla needs to start advertising costs will go up.
Don't need to run a sale when you continually lower prices.
What service department? When they add it again costs will increase.
Low margins and profitable with low valuation is preferred any day to unprofitable and high valuation. 5 quarters does not make a trend.
I'd like to know what Tesla is capable of besides cashing in subsidies and issuing shares that any other auto company is incapable of?
[/quote]

As I already noted above, Tesla only recently became profitable because the plow profits back into growing the company (building factories, RND, supercharging network, etc.). They always made money on each vehicle they sell. You can keep harping on the lowering of prices, but that was always Teslaís stated goal. The fact that Tesla can lower prices AND still make 23.7% auto gross margins just demonstrates why they are and will continue to crush the ďcompetition". This before we even consider the total cost of ownership advantage.  Five quarters does not make a trend? Thatís funny. Iíd argue has showed a trend of steady rapid growth for the past decade all while folks like yourself speak of the impending doom. I already addressed the subsidy argument above in my reply to WhiteTrashCash. Thatís a complete canard. So, if you're just going to keep throwing out debunked bear talking points Iíll move on.

bacchi

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #34 on: December 10, 2020, 08:37:23 PM »
And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%).

That's gross profit margin, which only uses revenue and COGS.

Toyota has a Q3 16.95% gross profit margin but, more importantly, the Q3 net profit margin is 6.95%. Tesla's net profit margin is 3.77%.*

GM's GPM and NPM are 17.06% and 11.40%, respectively.

11.40% (GM) > 6.95% (TM) > 3.77% (TSLA)



* https://ycharts.com/companies/TSLA/gross_profit_margin
« Last Edit: December 10, 2020, 08:45:31 PM by bacchi »

3toesloth

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #35 on: December 10, 2020, 08:41:45 PM »
ColoradoTribe
All I want is one thing that Tesla does that other companies are incapable of? The only thing I can think of is they have guys like you arguing for them on sites across the internet.

ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #36 on: December 10, 2020, 08:44:33 PM »
Iíve heard your last sentence repeated for the last 10 years in various forms. Iíve made a lot of money betting on Tesla do to just that since I invested in 2013.
Stock price bro! is not a logical argument. People made tons on; RCA, Enron, cisco, Yahoo, Nicola, Nio, pets.com, ........
[/quote]

Oh, Iím sorry, I thought the goal was to make money, not ďlogicalĒ arguments. Though, I think Iíve brought far more facts to this debate than you. I bought a Nissan Leaf in 2013 and realized EVs were the future. I did my research on Tesla and for the first time in my life placed a large bet on an individual company. I made my bet on a simple investment thesis:

1) EVs and battery storage are the future
2) Tesla is the leader in EV and battery storage

I will maintain my investment in Tesla as long as both of these hold true. You donít like Tesla or think its garbage thatís fine. Place your bets accordingly. Best of Luck!

3toesloth

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #37 on: December 10, 2020, 08:50:49 PM »
1) EVs and battery storage are the future
2) Tesla is the leader in EV and battery storage

I will maintain my investment in Tesla as long as both of these hold true. You donít like Tesla or think its garbage thatís fine. Place your bets accordingly. Best of Luck!
[/quote]
Many companies start out as the leader, but if there is nothing that keeps them there they don't last. I've never heard a logical response to "what makes Tesla special" so will stay far away if not short. Be careful Chairperson has been selling a ton of shares lately.
All the best bud.

ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #38 on: December 10, 2020, 09:14:48 PM »
And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%).

That's gross profit margin, which only uses revenue and COGS.

Toyota has a Q3 16.95% gross profit margin but, more importantly, the Q3 net profit margin is 6.95%. Tesla's net profit margin is 3.77%.*

GM's GPM and NPM are 17.06% and 11.40%, respectively.

11.40% (GM) > 6.95% (TM) > 3.77% (TSLA)



* https://ycharts.com/companies/TSLA/gross_profit_margin

And I would argue its more appropriate to use gross margin to compare Tesla to the competition at this time because Tesla is still in its intensive growth phase and plowing money back into building factories etc. More established manufacturers are spending less on infrastructure, so their net profit will be higher than Tesla. It reinforces my point that if Tesla stopped reinvesting, they would be a wildly profitable mid size car manufacturer. Thatís not the goal. It does show that once Tesla reaches the same production scale as Toyota and slow its growth curve the EV margins will blow away the margins of the traditional ICE manufacturers.

bacchi

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #39 on: December 10, 2020, 10:23:19 PM »
And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%).

That's gross profit margin, which only uses revenue and COGS.

Toyota has a Q3 16.95% gross profit margin but, more importantly, the Q3 net profit margin is 6.95%. Tesla's net profit margin is 3.77%.*

GM's GPM and NPM are 17.06% and 11.40%, respectively.

11.40% (GM) > 6.95% (TM) > 3.77% (TSLA)



* https://ycharts.com/companies/TSLA/gross_profit_margin

And I would argue its more appropriate to use gross margin to compare Tesla to the competition at this time because Tesla is still in its intensive growth phase and plowing money back into building factories etc. More established manufacturers are spending less on infrastructure, so their net profit will be higher than Tesla. It reinforces my point that if Tesla stopped reinvesting, they would be a wildly profitable mid size car manufacturer. Thatís not the goal. It does show that once Tesla reaches the same production scale as Toyota and slow its growth curve the EV margins will blow away the margins of the traditional ICE manufacturers.

Capex is not a revenue expenditure. It doesn't affect net margin.

In 2019, Toyota spent over 10x more capex than Tesla did.

ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #40 on: December 10, 2020, 10:54:39 PM »
And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%).

That's gross profit margin, which only uses revenue and COGS.

Toyota has a Q3 16.95% gross profit margin but, more importantly, the Q3 net profit margin is 6.95%. Tesla's net profit margin is 3.77%.*

GM's GPM and NPM are 17.06% and 11.40%, respectively.

11.40% (GM) > 6.95% (TM) > 3.77% (TSLA)



* https://ycharts.com/companies/TSLA/gross_profit_margin

And I would argue its more appropriate to use gross margin to compare Tesla to the competition at this time because Tesla is still in its intensive growth phase and plowing money back into building factories etc. More established manufacturers are spending less on infrastructure, so their net profit will be higher than Tesla. It reinforces my point that if Tesla stopped reinvesting, they would be a wildly profitable mid size car manufacturer. Thatís not the goal. It does show that once Tesla reaches the same production scale as Toyota and slow its growth curve the EV margins will blow away the margins of the traditional ICE manufacturers.

Capex is not a revenue expenditure. It doesn't affect net margin.

In 2019, Toyota spent over 10x more capex than Tesla did.

I appreciate the correction on Capex and revenue. Is it fair to say that since COGS does factor into net margin that Toyota has an advantage in that they have a more mature supply chain and benefit from greater economies of scale? Is it also fair to say Tesla will reap these same benefits and continue to improve their net margins as they continue to rapidly grow? For example, the battery pack is by far the most expensive component of an EV and battery costs have dropped dramatically in recent years and will continue to decrease as volume battery production ramps. I think it's fair to say Toyota is unlikely to see further or drastic decreases in their supply/component costs? If anything, Toyota will be writing off stranded assets related to their ICE business as they are forced to transition to EVs (or hydrogen fuel cells, if they decide to go that route). The Tesla bears (not saying you are one) always make it sound like the auto bigs will just flip a switch and their ICE production lines will start churning out EVs at volume overnight. Its going to take years and an entire culture shift, bringing in battery and software expertise, finding battery suppliers or building the infrastructure in house, building out a charging network, designing new EV platforms from the ground up, etc., all while maintaining and simultaneously competing with their core ICE business.  Not to mention they have legacy pension and union obligations and a dealer network that wants nothing to do with selling low maintenance EV that can easily last 500k miles. Would anyone honestly rather be GM or Ford right about now?

Paul der Krake

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #41 on: December 10, 2020, 11:45:15 PM »
Vanguard has a process for adding stock to the index over time, they don't just buy billions of TSLA the day it's added (Months I believe, but you'll have to google for details as I don't remember). So any effect of S&P "pump & dumb" will be diluted. And even if they did, then everyone would sell out of the index just before people dumb TSLA, but then the stock holders would sell earlier..etc etc.

Does that mean that there could be a deviation between a S&P500 tracker such as .inx and VOO?
Source for this?  From what I've read most are following SP500 instructions to do it all in one go instead of tranches which will be on end of day Dec 18 (friday) and start of Dec 21(Monday).  That would be nice if Vanguard did that, but like he says it would certainly create a deviation between sp500 trackers.
"Frontrunning" is the keyword you're looking for.

Basically people try to anticipate stocks being added to the index. Index fund managers certainly don't want to get caught with their pants down, so they employ a bunch of clever financial engineering tricks (hint: options) to avoid being in the position of suddenly having to buy the underlying stock.

The fund's assets never fully track the index, because this constant tweaking requires to have cash on hand, whether it comes from expense ratios or elsewhere.



bacchi

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #42 on: December 11, 2020, 08:59:53 AM »
And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%).

That's gross profit margin, which only uses revenue and COGS.

Toyota has a Q3 16.95% gross profit margin but, more importantly, the Q3 net profit margin is 6.95%. Tesla's net profit margin is 3.77%.*

GM's GPM and NPM are 17.06% and 11.40%, respectively.

11.40% (GM) > 6.95% (TM) > 3.77% (TSLA)



* https://ycharts.com/companies/TSLA/gross_profit_margin

And I would argue its more appropriate to use gross margin to compare Tesla to the competition at this time because Tesla is still in its intensive growth phase and plowing money back into building factories etc. More established manufacturers are spending less on infrastructure, so their net profit will be higher than Tesla. It reinforces my point that if Tesla stopped reinvesting, they would be a wildly profitable mid size car manufacturer. Thatís not the goal. It does show that once Tesla reaches the same production scale as Toyota and slow its growth curve the EV margins will blow away the margins of the traditional ICE manufacturers.

Capex is not a revenue expenditure. It doesn't affect net margin.

In 2019, Toyota spent over 10x more capex than Tesla did.

I appreciate the correction on Capex and revenue. Is it fair to say that since COGS does factor into net margin that Toyota has an advantage in that they have a more mature supply chain and benefit from greater economies of scale? Is it also fair to say Tesla will reap these same benefits and continue to improve their net margins as they continue to rapidly grow? For example, the battery pack is by far the most expensive component of an EV and battery costs have dropped dramatically in recent years and will continue to decrease as volume battery production ramps. I think it's fair to say Toyota is unlikely to see further or drastic decreases in their supply/component costs? If anything, Toyota will be writing off stranded assets related to their ICE business as they are forced to transition to EVs (or hydrogen fuel cells, if they decide to go that route). The Tesla bears (not saying you are one) always make it sound like the auto bigs will just flip a switch and their ICE production lines will start churning out EVs at volume overnight. Its going to take years and an entire culture shift, bringing in battery and software expertise, finding battery suppliers or building the infrastructure in house, building out a charging network, designing new EV platforms from the ground up, etc., all while maintaining and simultaneously competing with their core ICE business.  Not to mention they have legacy pension and union obligations and a dealer network that wants nothing to do with selling low maintenance EV that can easily last 500k miles. Would anyone honestly rather be GM or Ford right about now?

Well, we know that GROSS profit margin is better for Tesla than the 3 legacy car manufacturers above, even with their advantages. That's fantastic and, actually, surprising considering the battery costs.

That can only be because the COGS for EVs is less expensive. As more Toyota production changes to EVs, its COGS will (?) also decrease proportionally.

I'm not sure why operating costs are higher at Tesla. It could be related to employee retention costs or interest on debt.

But to your point -- yes, Toyota/GM/VW will have to shift strategies and it's burdened with pensions and old factories and an outdated dealer network. They can't pivot as quickly as Tesla and their EVs simply don't have the same cachet as a Tesla EV.

What Toyota does have is $40B in profit this year, which trumps the $5B Tesla made in a stock issuance this week. That $40B covers a lot of fuckups and a lot of shifting.

ChpBstrd

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #43 on: December 11, 2020, 10:08:02 AM »
They can't pivot as quickly as Tesla and their EVs simply don't have the same cachet as a Tesla EV.

When I was a kid, there were still old-timers around who talked about how Toyota's new Lexus brand would never be a Cadillac or a Lincoln.

ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #44 on: December 11, 2020, 10:28:02 AM »
They can't pivot as quickly as Tesla and their EVs simply don't have the same cachet as a Tesla EV.

When I was a kid, there were still old-timers around who talked about how Toyota's new Lexus brand would never be a Cadillac or a Lincoln.

A more apt comparison would be the old timers who talked about how Henry Fordís new fangled contraption would never replace the ever reliable horse and buggy.


ColoradoTribe

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #45 on: December 11, 2020, 10:36:49 AM »
And yet Tesla, even as they lower prices in keeping with their mission they produce auto profit margins (23.7 % in Q3) that the ICE manufacturers would kill for (GM ~10%).

That's gross profit margin, which only uses revenue and COGS.

Toyota has a Q3 16.95% gross profit margin but, more importantly, the Q3 net profit margin is 6.95%. Tesla's net profit margin is 3.77%.*

GM's GPM and NPM are 17.06% and 11.40%, respectively.

11.40% (GM) > 6.95% (TM) > 3.77% (TSLA)



* https://ycharts.com/companies/TSLA/gross_profit_margin

And I would argue its more appropriate to use gross margin to compare Tesla to the competition at this time because Tesla is still in its intensive growth phase and plowing money back into building factories etc. More established manufacturers are spending less on infrastructure, so their net profit will be higher than Tesla. It reinforces my point that if Tesla stopped reinvesting, they would be a wildly profitable mid size car manufacturer. Thatís not the goal. It does show that once Tesla reaches the same production scale as Toyota and slow its growth curve the EV margins will blow away the margins of the traditional ICE manufacturers.

Capex is not a revenue expenditure. It doesn't affect net margin.

In 2019, Toyota spent over 10x more capex than Tesla did.

I appreciate the correction on Capex and revenue. Is it fair to say that since COGS does factor into net margin that Toyota has an advantage in that they have a more mature supply chain and benefit from greater economies of scale? Is it also fair to say Tesla will reap these same benefits and continue to improve their net margins as they continue to rapidly grow? For example, the battery pack is by far the most expensive component of an EV and battery costs have dropped dramatically in recent years and will continue to decrease as volume battery production ramps. I think it's fair to say Toyota is unlikely to see further or drastic decreases in their supply/component costs? If anything, Toyota will be writing off stranded assets related to their ICE business as they are forced to transition to EVs (or hydrogen fuel cells, if they decide to go that route). The Tesla bears (not saying you are one) always make it sound like the auto bigs will just flip a switch and their ICE production lines will start churning out EVs at volume overnight. Its going to take years and an entire culture shift, bringing in battery and software expertise, finding battery suppliers or building the infrastructure in house, building out a charging network, designing new EV platforms from the ground up, etc., all while maintaining and simultaneously competing with their core ICE business.  Not to mention they have legacy pension and union obligations and a dealer network that wants nothing to do with selling low maintenance EV that can easily last 500k miles. Would anyone honestly rather be GM or Ford right about now?

Well, we know that GROSS profit margin is better for Tesla than the 3 legacy car manufacturers above, even with their advantages. That's fantastic and, actually, surprising considering the battery costs.

That can only be because the COGS for EVs is less expensive. As more Toyota production changes to EVs, its COGS will (?) also decrease proportionally.

I'm not sure why operating costs are higher at Tesla. It could be related to employee retention costs or interest on debt.

But to your point -- yes, Toyota/GM/VW will have to shift strategies and it's burdened with pensions and old factories and an outdated dealer network. They can't pivot as quickly as Tesla and their EVs simply don't have the same cachet as a Tesla EV.

What Toyota does have is $40B in profit this year, which trumps the $5B Tesla made in a stock issuance this week. That $40B covers a lot of fuckups and a lot of shifting.

Toyota is betting on hydrogen fuel cell vehicles last I checked. Theyíre going to need all that profit margin when they start writing off stranded ICE assets and spending billions on the needed EV infrastructure. I do believe Toyota survives and prospers if they abandon the fuel cell route and get serious about battery EVs ASAP. If they went all in tomorrow, I think it would take them 5 years minimum to get to where Tesla is today.  Itís odd that Toyota pioneered the hybrid and made it mainstream with the Prius, but hybrids will quickly be seen as odd anachronisms once EV adoption takes off. I see hybrid sales dropping off a cliff sometime in the next 5 years.

I actually see Apple as Tesla's biggest threat. Apple has the resources and the software engineering expertise. Apple is not saddled with an entrenched ICE culture and legacy infrastructure. Starting from scratch (with the money to bank roll it) is probably easier than the bigs trying to reinvent themselves.

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #46 on: December 11, 2020, 10:52:47 AM »
In related news, Toyota is claiming that they have a "solid-state" battery that can do 500km (300 miles) on a single charge and can be charged in 10 minutes. They plan on rolling out in 2021. I really gotta dump my ICE vehicle soon before they become worthless lol

dandarc

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #47 on: December 11, 2020, 11:04:04 AM »
In related news, Toyota is claiming that they have a "solid-state" battery that can do 500km (300 miles) on a single charge and can be charged in 10 minutes. They plan on rolling out in 2021. I really gotta dump my ICE vehicle soon before they become worthless lol
At least another 10 years for fleet to turnover, even if the technology's 100% ready today.

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #48 on: December 11, 2020, 11:04:10 AM »
I really gotta dump my ICE vehicle soon before they become worthless lol

I think that I can get another nine years out of mine if I'm careful, and then just live car-free. Possibly with self driving taxis.

3toesloth

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Re: The effect of Tesla being added to the S&P 500. Our Index funds...
« Reply #49 on: December 11, 2020, 11:04:18 AM »
Legacy auto is very good at spinning up new production lines they do it all the time. I doubt building a car around a body and battery is much different than building a car around a body and engine. Judging from initial quality of model Y I could be wrong tho.