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Tesla's S&P Inclusion: Will Be Studied By Investors For Years

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    Tesla's S&P Inclusion: Will Be Studied By Investors For Years

    S&P 500 just announced they will admit Tesla, which is the largest market cap company ever to enter the S&P. This is unprecedented to the point that for the first time ever, S&P is not only extending the time of announcement to inclusion by 3x, but also asking all large fund managers to vote in as to what to do.

    As we know many retirement funds track the S&P, or benchmark against the S&P. The ones that tracks it will be REQUIRED to buy any company that is about to be included, while those that benchmarks against the S&P may or may not buy in.

    The number of shares required to buy in is based on the market cap of the incoming company divided by the total market cap of all companies in the S&P. This puts the buy in amount at 1.1% of S&P funds, which is sitting at over 115 million shares. These shares will be a mandatory buy. The amount of shares that may or may not be bought up by benchmarker funds are around 160 million shares.

    Due to the large amount of shares that need to be bought, there needs to be ample float of shares that needs to be available at a decent price or else the price will increase(like an auction). However, the float of Tesla is extremely small compared to most large cap companies because...

    1. Elon Musk own 1/4 of the company and swear to never sell(and kept this promise)
    2. Institutional investors have weaker hands, but they believe in the company.
    3. Resilient retail investors who hold Tesla since day one and will never sell (until the stock price becomes absurd).
    4. Short sellers need to cover asap before they get run over by index funds so they must be in front of the line. Remember that when short seller cover, they are BUYERs of Tesla shares. And if the bank requires them to buy or margin called, they will buy at any price(also known as short squeeze). There are over 53 million shares belong to shorts.

    This is a recipe for disaster as a squeeze of shorts, indexers, and swing traders who understand all this rushing in can lead stock price to double or triple over a short amount of time as the float is so tiny. S&P committee understands this as they do not want retirement funds to buy Tesla at absurd prices just to hold the bags as the squeeze is over. They are proposing more tranches of add in verse doing it all at once.

    So those who own Tsla, congrats..there will be fireworks for the next 14-21 days. For those who shorted it...good luck.
    Last edited by Singuy; 11-16-2020, 08:09 PM.

    #2
    Up 12% this morning despite the market falling
    Brian

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      #3
      More context on Tesla:

      From Reuters:

      California's new coronavirus curfew does not apply to Tesla workers -state health dept



      By Tina Bellon

      (Reuters) - Workers at Tesla Inc’s California vehicle factory are deemed essential and are not impacted by the state’s latest restrictions to curb a new surge in coronavirus infections, the California health department said on Friday.

      Tesla and local California officials in March engaged in a heated months-long standoff over restrictions imposed to curb the first wave of infections, which culminated in the company’s chief executive, Elon Musk, defying health orders, suing local officials and threatening to leave the state.

      California’s governor on Thursday imposed a curfew on social gatherings and other nonessential activities.

      Beginning on Saturday, the stay-at-home order prohibits non-essential business from 10 p.m. until 5 a.m. each day and applies in the majority of the state’s counties, including Alameda County, where Tesla’s factory is located.

      Asked whether the order applied to workers at Tesla’s Fremont factory, the California Department of Public Health in a statement said it did not apply to employees deemed essential workers, with manufacturing listed as an essential workforce.

      “The Critical Manufacturing Sector identifies several industries to serve as the core of the sector including Transportation Equipment Manufacturing Products,” the office said.

      CNBC first reported on the health department’s policies.

      Under California law, local counties can impose more restrictive measures than mandated by the state. Alameda County on Friday did not immediately respond to a request for comment.

      In a statement on Monday the county’s health department said it was following state guidance, but may act to restrict activities beyond the state’s requirements.

      During the initial virus outbreak in March, local officials ordered Tesla to halt production and Tesla’s factory remained shut down for roughly six weeks. Billionaire Musk in early May defied county orders by reopening the factory, telling county officials he stood ready for arrest.

      Link to original story.
      james.c.hendrickson@gmail.com
      202.468.6043

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