The biggest challenge for Apple to compete with Tesla is organizational: right now almost all innovation happens at Apple HQ with annual releases, the hardware supply chain is tightly controlled but low-innovation & low-cost.
This works well for consumer electronics, where owning the latest iPhone is an annual purchase event, and where each new iPhone is designed from scratch.
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But Apple's annual 100% redesign cycle is fundamentally incompatible with Tesla's approach, who in an Agile development method has made the entire Tesla factory agile & iterative, where most equipment runs the "Factory OS", part of their iterative R&D effort.
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Apple has over the last 2-3 decades enjoyed the economic advantages of isolating design, software from hardware production: they were able to divide & conquer suppliers and reduce their marginal costs enormously.
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But there's a big R&D efficiency price: there's very little cultural integration between their manufacturing plants in China & India, and Apple headquarters in California.
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This was not a big problem with smartphones, where Apple could prototype & innovate at low cost, and suppliers would build them at scale & compete with each other.
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But with EVs you cannot do annual grounds up designs if you want to compete with Tesla.
You need to do iterative design in the whole stack of production, with factory robotics & production engineers being peers of the electronics and software engineers in a flat meritocracy.
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Manufacturing meritocracy is 100% incompatible with how Apple operates today, and the Apple Car leaks suggest that they aren't even 𝙖𝙬𝙖𝙧𝙚 of the problem: they were contacting legacy contract manufacturers like Magna, to outsource car production...
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So I believe today Apple is farther back behind Tesla in terms of being able to compete than in 2015, when the first Apple Car details leaked...
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Right now TSLA is following a larger macro drop - the coronavirus-v2 scare that is affecting European markets.
The S&P 500 is down -2.1% - which does not yet include TSLA (will do on the open).
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This macro drop creates an arbitrage opportunity for S&P 500 benchmarked funds: The $695 inclusion price on Friday will be the basis for the S&P 500 inclusion, and with ES down -2.1% and TSLA beta 2.0 the 'index fair price' of TSLA right now is $695 lower by -2.1%*2.0: $665.
There's a valuable but under-reported aspect of Tesla joining the S&P 500 tomorrow: the decade long flight of capital from active funds to passive index funds and the massive, unprecedented, ongoing cash inflows passive index funds enjoy.
On the asset valuation basis active funds managed to grow in value, but this is only because of a bull market. The actual cash outflows from active funds to index funds & the arrival of new cash to index funds are massive: $200b-$300b per year.
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With TSLA joining the S&P 500 tomorrow, 1.67% of this ~$200b-$300b per year cash inflow will be invested into buying more TSLA stock - which is semi-permanently removed from the TSLA float and not traded again.
I.e. only about 69m shares worth of shareholders were willing to sell to index funds in the closing cross, and a large short seller sold them ~40m shares after-hours for $695.
This explains the sharp AH "spikes" to $695 visible in charts that many commented on.
Here's a finer grained view of the market anomaly: lots of huge orders with hundreds of thousands of shares slipping up to 695 & filling there.
I presume these were the indexers buying OTC/dark, while the entity 'painting' the price moved liquidity back to $680 quickly.
🟢 Bullish scenario: if there's a significant index buying shortfall as the numbers below suggest, then a post-inclusion rally might begin on Monday.
🔴 Bearish scenario: if that's wrong then @garyblack00's 10-20% pullback is possible too.
Any short term hedge funds driving a 10-20% correction had:
✅ 47m buy liquidity in AH to sell @ ~$680
✅ 69m liquidity to sell @ $695 on the close
Why didn't they sell? 🤔
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There's two main explanations:
✅ either hedge funds are confident about higher TSLA prices next week
✅ or the HF-selloff hypothesis was false to begin with, as explained by former large hedge fund quantitative equities and derivatives trader below.
In reality probably quite a few of the buyers on the close were not passive index funds:
❌ shorts covering or getting covered
❌ active funds that didn't want to stay TSLA-short against their benchmark & wanted to track TSLA at exactly the closing price
❌ options writers
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So the 13.6m shortfall of indexing shares is likely substantially higher.
Monday TSLA trading will IMO be determined by market participants thinking these through, and by continued index fund accumulation.
But macro might interfere, and so might market shenanigans. 🤠
At around 3:20, seeing the lack of shares, the big index accumulator started flooding the TSLA market with sell requests, overwhelming demand & triggering stop losses of retail & other investors.
The sell tick below alone was over 400,000 TSLA shares.