Indexers need to buy ~120M $TSLA shares before 12/21. They will likely buy them Wed-Fri 12/16-12/18. Indexers can’t buy early because it could lead to dispersion (deviation from bm). There is no way of knowing how many TSLA shares traders have bought in front of indexers.
2/ We do know $TSLA has run up 47% since announcement vs 16% of float needed by indexers. On avg, 49M TSLA shares have traded per day since S&P announced. In the 10 days pre-announcement, 27M shares traded per day. Over 13 days, that’s 290M extra shares.
3/ No one knows how many shares were sold multiple times the last two weeks by traders. We don’t know how many of these $TSLA shares traded will be made available to indexers between 12/16-12/18. We know indexers need 120M shares. There are still 7 more days of potential buying.
4/ If fewer than 120M shares are made available by traders who bought shares since 11/16, $TSLA rises sharply. If more than 120M shares are supplied by traders who bought since 11/16, then TSLA falls. IMO TSLA peaks at b/t $650-$690, then falls 10-20%. But no one knows for sure.
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According to S3 Partners, $TSLA shorts have lost $35B in 2020. I talk with many TSLA shorts, and have been on the other side of their trade all year. Here is where $TSLAQ got it wrong: Way under-estimating TSLA TAM, and in thinking ICE-branded EV launches would hurt TSLA.
2/ Street estimates are soaring. $TSLA 2020 and 2021 EPS ests have almost doubled this year, as Y has quickly become TSLA ‘s best selling model with less than 20% cannibaliz’n of M3. Model Y is now being taken global. Meanwhile, China volumes will be 50% of TSLA volume in 2021.
3/ When I argued with shorts about Model Y, they missed that Y was a small SUV and M3 was a small sedan. The two don’t compete. And yet, shorts would argue Y would massively cannibalize M3. Y more than doubled $TSLA ‘s US TAM, from 25% to 66%, and will do the same globally.
Raising my $TSLA PT to $830 from $720, reflecting increase in TSLA EV share from 22% to 25%.
Oct YTD TSLA share now 25% vs 17% in FY’19, despite slew of new EV offerings.
$830 PT over 6-12 mos reflects FY’25 EPS of $24 (was $21) @ 50x P/E = $1,200, disct’d back @ 9.5% = $830.
2/ At $590, $TSLA underpriced at 62x FY’22 EPS $9.50 (Street $5.40), and 40x FY’23 EPS $14.80 (Street $5.95) with 50%+ 5-yr vol and EPS growth. At 1.2x FY’22 PEG, only mega-cap growth name cheaper than TSLA is $FB at 1.1x PEG (avg R1G PEG 2.0x). At $830 PT, TSLA has +40% upside.
3/ My new $TSLA non-GAAP EPS:
FY’20: $2.50 (no chg)
FY’21: $4.80 (no chg)
FY’22: $9.50 (vs $8.70)
FY’23: $14.80 (vs $13.00)
FY’24: $19.70 (vs $16.60)
FY’25: $24.00 (vs $21.00)
My new TSLA FY’25 delivs are 4,000K vs 3,520K prior (equal to 5.0% overall SOM vs 4.4% prior)
Here are 10 reasons why you should be buying $TSLA today at $560:
1/ Huge EV runway ahead, with global EV penetration now 3% likely to go to 20-25% by 2025 (6-8x increase).
2/ TSLA’s EV share continues to grow - not fall - as TAM expands, even as ICE competitors launch...
their own EVs. New EVs take from ICE vehicles, not other EVs. This is the biggest research flaw in $TSLAQ ‘s short thesis.
3/ $TSLA has several positive Dec/Jan catalysts to propel it higher, including wide FSD release (12/15), MIC Y production (12/15), CyTruck update (12/15).
4/ FY’21 vol guide of 800K+ will exceed Street ests of 774K (1/27). That will spark a fresh round of 2021 $TSLA earnings increases, pushing TSLA PTs higher.
5/ Biden’s 1/22 inaugural address will include clean energy, incl restoration of $7,500 credit on all EVs, incl TSLA.
$TSLA stock will likely continue to climb into the 12/21 S&P rebalance, as index mgrs complete much of their purchase of 120M TSLA shares by Fri 12/18. I’m not as optimistic as others about TSLA ‘s ultimate price rise, given TSLA’s 43% increase since 11/16 vs 16% float needed.
2/ It’s difficult to quantify how much front running has been by HFs and traders who have bought $TSLA in anticipation of index funds having to buy TSLA on the rebalance at the prevailing market price. Looking at trading volumes pre- and post-announcement...
3/ $TSLA has traded 51.5M shares per day (of 760M float) since 11/16 vs a 10-day avg of 26.6M shares per day prior to 11/16. That implies 250M excess shares traded since 11/16, which could just be multiple round-trips of algo- and day trading by all mkt participants.
Key debate: How many $TSLA shares are needed prior to 12/21 inclusion? 1/ Indexers only: 120M (16% float) 2/ Indexers + active mgrs: 120M + 180M=300M (40% float) at bm wt
My feeling: It’s closer to 120M since: 1/ Active mgrs with S&P bms could have bought TSLA all along, and..
2/ Most funds with S&P bms are core/value and will find $TSLA expensive at 150x 2021 Street EPS. Growth mgrs usually use R1000 growth as their bm. That said, with TSLA in their bm at a 1.4% wt, mgrs have to make a conscious decision to own or not own it. It’s too big to ignore.
3/ Here’s the math:
$TSLA wt: (760M float x $590)/ ($31.4T+$0.5T)=1.40%
Index mgrs: $5Tx1.4% /$590= 120M shares (16% float)
Active mgrs: $7.6T 1.4%/$590=
180M shares (24% float)
Index mgrs: 1.4% wt mandatory
Active mgrs: 1.4% wt optional
For those who are new followers, I went long $TSLA in Sept 2019, and hold it at 20-25% of my portfolio. It remains my largest position. My $720 TSLA PT has increased twelve times since Sept 2019 as fundamentals have steadily improved. I have never reduced my TSLA price target.
2/ I consider myself a disciplined growth investor. I like companies with best-in-class products, expanding TAM, brand leverage, and megatrend secular tailwinds. I always have a fair value that I think a stock is worth, calculated on present value of future earnings. $tsla
3/ Like many growth investors, I trade opportunistically around my positions - meaning, if I see a decline of 10-15% coming, I will lighten up and buy back at a lower price. Conversely, if $TSLA gets slammed for a reason I think is dumb (e.g., product recalls), I buy more.