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Shall TSLA be added to S&P500? (out of main)
- Thread starter Fact Checking
- Start date
EVNow
Well-Known Member
My optimistic '19 P&L still shows about $200 loss. Need to get this ugly Q1 '19 out of the way.
So, after Q1 '20. This assuming the Q2 loss is manageable - which means they have to hit 90k deliveries this quarter with a substantial improvement in both Model3 and S+X.
It is possible Tesla will deprioritize profits - and just concentrate on cash flow. They could start investing more heavily in FSD - in which case S&P addition gets postponed.
How did you get to 310M? This is a simple matter of looking up the loss in Q1, and subtracting the profit from Q4 and Q3. In thousands: 702,135-139,483-311,516=251,136. So Tesla needs a profit of more than 251M in Q2 to qualify.
(I agree that this whole discussion should be in a different thread, but this seems important enough that it should be corrected here. Not that I think there’s a realistic chance of a 251M profit.)
StealthP3D
Well-Known Member
It meets the internal goals of the S&P 500 better if Tesla is added to the index before they appreciate too much. TSLA added at $600/share does not "juice" the index as much as if they are added at $300/share. They like to have good companies with good growth so they can outperform the other major indexes.
As to precedence of keeping companies OUT of the index (that met all the criteria), I know of none. Someone speak up if they know of any I missed. On the other hand, they have "relaxed" the rules to let companies who did NOT meet all the criteria into the index. Most recently, this month I believe, they let T-Mobile US in even though they do not have at least 50% of their shares in the public domain (which is one of the requirements).
Personally, I think TSLA being added to the S&P 500 would be such a big deal for the stock that discussion of the probability of it being added to the index definitely belongs in this thread. Inclusion in the S&P 500 would be a HUGE deal. There are literally trillions of investment dollars in SP500 index funds that would be forced to buy TSLA if it were part of the index. This is money that CANNOT currently invest in TSLA.
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StealthP3D
Well-Known Member
Good points. Having followed Tesla pretty closely over the previous three-plus years, I'm getting the sense something is up. Remember that internal e-mail from Musk a few months ago about putting the binders on spending? The term "binders" comes from "brakes". What if Musk is putting the regenerative "binders" on spending because he knows the required spending going forward will be greater than the ramp in production capacity? So, rather than missing out on SP500 inclusion for another couple of years, he figured it would be better to "bite the bullet" and clamp down one more quarter to get into the SP500? I call this "regenerative" braking because the benefits would be more than the pain of delaying necessary spending.
In other words, if Tesla does have a "stealth" profit up their sleeve, it might not come so much from increasing margins on car sales, it could be largely due to other factors (ZEV credits, cutting spending in other areas not related to production).
This would explain a lot (no apparent attempt to expand service and a slowing down of Supercharger installs around the world). It would also further Musk's desire to burn the shorts badly. The S&P 500 is the last thing they think is even possible. Perhaps their worst nightmare.
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shrspeedblade
Rideshare Monkey
Not to mention what Ihor said a couple of weeks ago of it driving a lot more shorts to the exits.
Yes, I remember that. There's been a few things like that throughout the quarter, and I too have a feeling they might try to show very good numbers this quarter for one last time, before they start to spend heavily on Giga 3 (2B capex over next 2 months? SG&A expenses closing in on 1B per month by Q4?). Also, before Giga 3 spending completely ends, they will already start spending heavily on Model Y ramp up, so I think from Q3'19 until Early 2021 they will be spending a lot. I see EBIT spiking up again around Q2'21, and FCF also being weak (weak being breakeven, or slightly negative) until around the same time.
I'm doubtful Tesla will be included in the S&P though, even if they hit the mark. It's a vote after all, and on top of Tesla's volatility, there are a lot of people who don't want Tesla included, so I'm not too optimistic about this.
StealthP3D
Well-Known Member
I think the vote is more of a check list. As I said earlier, I am not aware of any other company that made all the qualifications but was voted down. If anyone knows of any example of this it would be useful to compare to Tesla's specifics. We do know they let one company in that DIDN'T meet all the criteria. That was this month so maybe the S&P is currently looking for new blood to "supercharge" their index.
If true, that would be amazing, and definitely boost short term SP. If it's true that inclusion would basically be a given if they reach that 250M profit, I agree that the chance they tried to achieve this through various tricks such as ZEV credits is very high. 250M profit is a lot though, and even my bull case for Q2 earnings is slightly short of that at 225M.
Do companies who enter the S&P ever drop out again once they fall below a certain threshold?
One has to go out for every one that goes in. That can be because they go out of business, merge with another in the 500, etc.
In the case of the most recent change RedHat merged with IBM leaving an opening, and they selected T-Mobile to fill the spot even though they didn't meet all of the "should haves". It is too bad they didn't select Tesla instead. (But maybe they think the profit should is more important than the 50% of stock being public should.)
So one way to speed up getting Tesla in might be having another company fall out for one reason or another.
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Now, this is an interesting point. I don't think Tesla can meet that "sum of trailing four quarters GAAP positive" requirement at the end of Q2, or at the end of Q3. But I wonder what the odds are that the S&P committee will relax their requirements if Q2 is positive, or if Q2 and Q3 are both positive -- officially the "sum of the trailing four quarters" is supposed to be an indication of "financial viability".
Unlike some of the S&P requirements, the "sum of four quarters GAAP positive" is a "should", meaning the committee has the discretion to waive the requirement. By contrast, "the primary listing must be on an eligible U.S. exchange", and "must" be organized as a corporation, which seems non-discretionary.
The S&P already uses a different metric to evaluate REITs, which can be unprofitable and still included.
Here's the really odd rule exception. A company which purchases an S&P Composite 1500 copmany may specifically be included by the committee even if it doesn't meet the "financial viability" criteria. In other words, if Tesla bought Timken Steel, they'd probably automatically be included. Unlikely but funny thought.
In other words, it is quite possible that the S&P committee will add Tesla early. It's very disruptive to add a company after its market cap is extremely large; they want to add it early. In fact, it'll be crazy disruptive since it'll go straight into the S&P 100 already. If they wait much longer, it could be as bad as when they added Berkshire Hathaway (for whom they had to change the rules), which is probably not an experience they want to repeat.
Singer3000
Member
Looking ahead, Q3 is forecast to be “ok”. So breakeven ish territory at best.
Q4 supposed to be good but that’s not going to make up for Q1 and Q2 of this year.
So we go into 2020, when Q1 and Q2 are said by Elon to be “tough”. Looks like an outside chance of S&P inclusion after Q3 2020 results. But I wouldn’t be surprised if the 12-months of rolling profit is only achieved sometime in 2021.
Not something many of expected after Q3 last year I suspect.
The deus ex machina to this is FSD. No, not the 2020 robotaxi but the potential release of the deferred revenue. Unless I’m mistaken, we don’t have much info to go on there with how much relates to FSD and of that, what milestones have been agreed with the auditors?
Q4 supposed to be good but that’s not going to make up for Q1 and Q2 of this year.
So we go into 2020, when Q1 and Q2 are said by Elon to be “tough”. Looks like an outside chance of S&P inclusion after Q3 2020 results. But I wouldn’t be surprised if the 12-months of rolling profit is only achieved sometime in 2021.
Not something many of expected after Q3 last year I suspect.
The deus ex machina to this is FSD. No, not the 2020 robotaxi but the potential release of the deferred revenue. Unless I’m mistaken, we don’t have much info to go on there with how much relates to FSD and of that, what milestones have been agreed with the auditors?
Artful Dodger
"Neko no me"
There's one more method Tesla can get onto the S&P 500: (I'll post it here since its bound to get punted from the main thread)
There's another way to get into the S&P 500 using GAAP accounting rules. Say Tesla buys Panasonic's N. American battery business by the end of 2019, and Telsa is GAAP neutral in 2019Q3. That leaves 700M+400M+0~1.1B in YTD losses going into 2019Q4.
So under GAAP rules, Tesla claims all of Panasonic's 2019 revenues from GF1, but doesn't have to claim their expenses for FY2019. Say there's ~30GWh of btys sold at $100/KWh then that's about $3B in revenue. As long as other expenses which much be claimed under GAAP are less than $1.9B (don't ask me; I'm no Acct) then the merged company is technically GAAP neutral in 2019. So if Tesla makes a single buck in Q4 (hopefully much better) then TSLA qualifies to be added to the S&P 500 in 2020Q1.
So couple ideas there for y'all.
Cheers!
- acquire a company that's already listed on the S&P 1500 (ie: a jr. Ins. Co.)
- TSLA automatically gets listed on that Index as the old ticker is retired
- then promoted to the S&P 500 by decision of the Committee (ie: due to Mkt Cap).
There's another way to get into the S&P 500 using GAAP accounting rules. Say Tesla buys Panasonic's N. American battery business by the end of 2019, and Telsa is GAAP neutral in 2019Q3. That leaves 700M+400M+0~1.1B in YTD losses going into 2019Q4.
So under GAAP rules, Tesla claims all of Panasonic's 2019 revenues from GF1, but doesn't have to claim their expenses for FY2019. Say there's ~30GWh of btys sold at $100/KWh then that's about $3B in revenue. As long as other expenses which much be claimed under GAAP are less than $1.9B (don't ask me; I'm no Acct) then the merged company is technically GAAP neutral in 2019. So if Tesla makes a single buck in Q4 (hopefully much better) then TSLA qualifies to be added to the S&P 500 in 2020Q1.
So couple ideas there for y'all.
Cheers!
EVNow
Well-Known Member
gaap or non-gaap ?
I'd expect,optimistically, break-even for non-gaap in Q3. break-even for gaap in Q4.
Singer3000
Member
I doubt they'll make GAAP breakeven in Q3 but a lot of really depends on S&X doesn't it?
Re-reading the call transcript, I am more confident than before in my earlier point that FSD revenue recognition is key to S&P before 2021:
Unidentified Analyst
Hey, it's Edison on for Emmanuel. Just first question on the guidance, I know previously there was a target out there of 25% kind of on S and X and Model 3. Just wondering is the updated one is that suggesting that that's no longer in play for the year or kind of what are the implications with today's update?
Elon Musk
Well, if you factor in the full self-driving option. I think it is in play for the year. We need to get the features done, make sure they are great, roll them out, and recognize revenue and increase the take rate on full self-driving.
Hey, it's Edison on for Emmanuel. Just first question on the guidance, I know previously there was a target out there of 25% kind of on S and X and Model 3. Just wondering is the updated one is that suggesting that that's no longer in play for the year or kind of what are the implications with today's update?
Elon Musk
Well, if you factor in the full self-driving option. I think it is in play for the year. We need to get the features done, make sure they are great, roll them out, and recognize revenue and increase the take rate on full self-driving.
Not that this factors in management's thought processes I'm sure, they're far more interested in the cashflow impact from an improved take-rate than they are revenue recognition of past orders.
Buckminster
Well-Known Member
From main thread:
Wow.
I don't think this kind of organic expansion of U.S. Tesla demand ever happened before on such a scale, so early in a quarter (we are 2.5 weeks into Q4).
Previously we had big increases in orders when production volumes were still low and new Model 3 variants were released (Q2-Q4 2018), but that was primarily pent-up demand. None of that happened in this quarter and production has expanded further, which makes it even more impressive IMHO.
While Tesla did indicate an uptick in the order book in the Q3 delivery report, based on production levels I guessed it to be max of 1-3 weeks worth of demand - not 4-10 weeks (!).
I'm really curious what caused this:
Or something else?
- Is this the Nürburgring effect? Did Tesla finally crack one of the secrets to Porsche's stable sales and sky high margins?
- Is this the Taycan effect? Did a good chunk of the 30,000 Taycan reservations flock to the Model S and M3P in disappointment at Porsche's mediocre performance where the only thing 'ludicrous' is the price?
- Is this the trade war effect? Does the
unconditional capitulation of Trumptremendous win of Trump in the trade war against China and the resulting cease-fire ease consumer worries about short-term U.S. recession and job loss risks?- Is this the portfolio effect? Does a +40% rise in TSLA and other high-tech stocks improve U.S. balance sheets enable some profit taking or deleveraging to allow another Tesla for the family, or two?
- Is this the final $1,750 federal tax credit effect? Use it or lose it - but only ~1.5% of a Model S/X ASP, and only ~3% of a Model 3 ASP, so according to @neroden's tax credit model it's worth about 1-2 weeks of pull-forward demand.
- Is this the Smart Summon effect? Over half a million Smart Summon demonstrations all across the U.S. over a single weekend sure caught attention. If yes then the Halloween pranks with Smart Summon will add another week or demand or so to the backlog ...
- Is this the V10 release effect? Sentry mode finally usable, Caraoke, Netflix, Spotify, computer games - what more to ask for?
Very curious development, and while Q3 earnings could be really bad ("Tesla missing Wall Street expectations" in all categories), this is bullish AF in the long run. I'm particularly happy about Model S/X order queue of 4-10 weeks - this is a big potential GAAP profit factor.
This IMO also explains the Model Y leaks and the Pickup Truck unveil: Tesla is now focused on developing Q1 demand. Would not be surprised if the Pickup Truck unveil was in late November, to guarantee that any media attention and influx of orders would help the January/February numbers.
The more tenacious long term shortz will also have to start seriously considering the prospect of Tesla being added to the S&P 500 in May-June or August-September next year: if Q4 is profitable and Q1 or Q2 is borderline profitable with a bit of FCA credits and deferred revenue help, then S&P 500 addition looks probable, given that the bad Q1'2019 (and Q2'2019) losses will have rolled out of the 4-quarter window of the S&P 500 profitability equation:
I.e. if Q3 isn't "too bad" - say -$200m loss, then Q4 earnings of $410m or better, and a profit of $200m in Q1'2020 would trigger S&P 500 inclusion of TSLA. Or if not then, then in Q2, with August-September addition to the S&P 500, because the -$408m loss of Q2 will have rolled off then.
- Q2'2019: -$408m
- Q3'2019: -$200m?
- Q4'2019: +$410m?
- Q1'2019: +$200m?
- Q2'2019: +$300m?
Still way too early to call though and not advice - I have a particularly bad track record with GAAP profitability and S&P 500 inclusion speculation ...
So what are the numbers needed for Q4 or Q1 inclusion?
Anyone else have a feeling that S+X demand recovery, Model 3 production maxed out, GF1 +30% output, solar ramp, GF3 ramping perfectly, FSD release with deferred revenue end December and pickup non-refundable fees etc will be able to boost profit making S&P happen after Q4?
Anyone else have a feeling that S+X demand recovery, Model 3 production maxed out, GF1 +30% output, solar ramp, GF3 ramping perfectly, FSD release with deferred revenue end December and pickup non-refundable fees etc will be able to boost profit making S&P happen after Q4?
Q4 is probably out of reach, since it would have to reverse the disastrous 2019Q1. It should be good, but almost certainly not that good. After 2020Q1, I think there's a very good chance.
EVNow
Well-Known Member
Well - if Q1 is bad and Tesla doesn't get gaap profit, anyway the 3 previous quarters won't matter.
So - basically we need the following ...
- Q4+Q1 gaap profit > $265M
- Q1 '20 > 0
Tesla has ~ 100M in one time income in Q3. So, $265M profit in Q4 is not by any means certain. Then, you have the Q1 uncertainty as well. That means,
- Q4 '19 : unlikely
- Q1 '20 : touch & go
- Q2 '20 : likely
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