Global market share of 1%. But market cap equals combined total of Toyota, Volkswagen (VW, Audi, Porsche, etc.), Daimler, GM, BMW, Honda, and Ford. Raised $10 billion in three months by selling shares.
By Wolf Richter for WOLF STREET.
Tesla is going to replace Apartment Investment and Management in the S&P 500 Index, S&P Dow Jones Indices announced Friday evening, fleshing out its initial announcement of November 16 that Tesla would be added to the index. The switch will become effective before the start of trading on Monday, December 21. Over $100 billion are estimated to flow in different directions as index funds have to unload Aimco and add Tesla. But they’ll position themselves ahead of time so they don’t have to all go out next Friday and buy or dump those shares in one day. In terms of Tesla shares, the index funds had a month to prepare.
The expectation that Tesla would be included in the S&P 500 index, and all the hype surrounding it, has been powering the last spike in my Quadruple WTF chart of the Year, which blew away and annihilated my Triple-WTF Chart of the Year of August 31, and my Double-WTF Chart of the Year of July 1, and my original WTF-Chart of the Year of February 4, which depicted the puny little 120% jump in one month, as noted in the chart below. Each of the prior three WTF points has been duly followed by a plunge (stock prices via YCharts):
All put together, Tesla shares soared 677% from the beginning of this year ($83.66) to the closing high on December 8 ($649.88). On Friday, TSLA fell $17 to close at $609.99.
Aimco dropped 4.4% Friday afterhours upon the news, after having plunged 37% so far this year.
With earnings per share of $0.50 over the past four quarters, Tesla has a PE ratio – if we’re still allowed to look at anything as antediluvian as a PE ratio – of 1,220 times earnings, when 10 to 20 is more typical for profitable automakers.
Based on its market capitalization, at the moment $578 billion, Tesla would be the sixth largest company in the S&P 500 behind Apple, Microsoft, Amazon, Google, and Facebook. And it would weigh over 1% of the S&P 500 index. This massive market cap is turning the otherwise fairly routine event of rejiggering the S&P 500 index into a global spectacle.
But Tesla has a market share of the global passenger vehicle market of about 1%. It’s just a small automaker. But Tesla’s market cap ($578 billion) is now about equal to the combined market cap ($582 billion) of Toyota (Toyota and Lexus), Volkswagen (VW, Audi, Porsche, and many other brands), Daimler, GM, BMW, Honda, and Ford – an amazing sight:
And Tesla has taken advantage of this situation: It has extracted $12.3 billion in new funds from investors via three stock sales this year — of which $10 billion in three months.
The latest stock sale, a $5 billion offering, was announced on December 8. And by December 9, it had sold all $5 billion worth of shares. This followed a similar $5 billion offering three months ago. And in March it had sold $2.3 billion of shares. This total of $12.3 billion come on top of the $20 billion or so it had raised since its IPO.
The inclusion in the S&P 500 has created a lot of demand for Tesla shares, and Tesla was more than happy to sell them into this demand at this huge big-fat share price. Now Tesla is swimming in investor cash, and it’s going to have to spend it.
Over the past four quarters combined, Tesla generated $28 billion in revenues, including “regulatory credits” – cashing in on government tax benefits has always been an essential part of Tesla’s business model. But it also had a huge amount of expenses and investments in plants and equipment, and it had to borrow money from Chinese state entities to build the Shanghai Gigafactory. That’s all part of the sordid business of being an automaker.
But in the third quarter, Tesla sold $5 billion in shares, with nearly no expenses attached to the cash, and in the fourth quarter so far it sold another $5 billion in shares, similarly with nearly no expenses attached to them (just a 0.25% fee to the investment banks that handled the sale). In other words, this is pure cash for Tesla.
At its net income rate over the past four quarters (around $500 million), it would take Tesla about 10 years to earn enough money from operations to equate one quarter’s worth of share sales. And you already know where I’m going with this…
At this rate, Tesla would be far better off just giving up on the sordid cash-consuming business of making cars and building factories and dealing with warranty issues and regulators and recalls and investigations into faulty suspensions and Autopilot fatalities and whatnot, and just focus on what it does best and pulls off flawlessly each time: Selling shares at hugely inflated prices.
It could sell them once a quarter on Autopilot, and no one would get killed, and it could shut down all its factories, and shed its people, and be done with pesky regulators and expenses. And investors, the way things stand, would love Tesla for it, no?
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.