Tesla - September

TSLA is having an unprecedented run in the stock market that completely defies logic! Disclaimer - I own Tesla stock. I love the vehicle. I see the potential. But, I also like logic.

Stock Split: This happened at the end of August. Stock splits should have no impact on stock price as the price divides, number of shares multiplies, the market cap remains exactly the same and more importantly, the company literally does nothing different between before and after the stock split. But, TSLA shares kept going up. It crossed $500 a share at one point, albeit just briefly.

S&P 500: were to decide if Tesla should be included in their S&P 500 benchmark index. There was so much hype around this event. When Tesla posted their Q2 profits, they had met the eligibility critera for inclusion in S&P500 but a qualitative assessment is undertaken by the S&P Dow Jones committee before including a stock in the blue-chip S&P 500 index. Front runners have been driving TSLA stock up and up and up for months citing the inevitable inclusion of the stock in the S&P 500 benchmark,. which in turn will force all the ETFs and Mutual Funds tracking against the S&P 500 benchmark to buy more Tesla stock, fueling a further increase in stock price. Against all this hype in September, S&P decided not to include Tesla in the S&P 500. Instead they included Etsy, Teradyne and Catalant to replace H&R Block, Coty and Kohls. S&P did not provide a rational for leaving out Tesla but the obvious logical reasons are (i) majority of the H1 2020 profits posted by the company included selling regulatory credits to other car manufacturers. This regulatory arbitrage is not long-term in nauture. and (ii) the stock price (and the market cap) are ridiculously inflated. TSLA stock trades at ~235x anticipated 2020 profits, which looks ludicrous when compared to the average of all other S&P500 stocks around ~26x 2020 estimated profits. In short, long term investors would have taken these logical reasons into consideration before buying Tesla stock. But, the short-term-gains minded investors may not have. I (for one) simply traded Tesla's volatility despite the fundmanentals suggesting the company is overvalued. If and when the bubble breaks, many short-term-gains-minded investors can get hit very hard.

Battery Day: The third big story about Tesla in September. Musk was supposed to announce something revolutionary on Battery Day. The hype was keeping the stock trading between $400 and $460 for a few days. There was a lot of excitement around this event. The night before the event (after market close), Mr. Musk tweeted that the announcement on Battery Day will be revolutionary, but the full benefit of it will only be seen in 2022. Musk (historically) has over promised and under delivered. It is a different matter that the under delivered products have been revolutionary in some sense. However, from investors (especially short-term-minded-investors/traders) focus on news that will create volatility in the stock price over the next few weeks to months may be a year. So, Battery Day turned out to be relatively a meek affair. The stock hit $365 at one point, but since has bounced back to trade >$400 as I write this post.

So, in summary, nothing seems to stop the Tesla share juggernaut. Stock Split, S&P 500 exclusion, Battery Day (meek) - nothing. This is a worrying sign to me as an investor in Tesla stock. 'Capital at Risk' is a very pertinent statement for Tesla stock!