TESLA UPDATE 09.09.2020

Tesla Stock Ups and Downs ….. Giga Berlin ….. Giga Shanghai ….. Giga Texas

****Just a short comment on Tesla’s stock. On September 8^th Tesla stock has its biggest drop yet, falling some $88.11 or 21% for the day as a NASDAQ selloff continued. Excluding market matters there were two major factors affecting Tesla’s drop. One, of course, the temporary decision to not include Tesla in the S&P 500 Index. Tesla’s inclusion had been widely expected (or hoped for by many) and clearly some index fund firms had bought ahead on the expectation, thus raising Tesla’s stock’s price, only to be disappointed when nothing happened. As a result, some index funds sold what Tesla shares they had purchased, in many cases taking a short term gain, and contributing to the stock’s decline.

The second reason for the stock drop was Tesla’s capital raise of $5 Billion, revealed in its recent September 4^th 8-K filing. While the capital raise was carefully constructed to give Tesla the right to sell any amount of stock in any quantities and prices they wanted (up to the $5B worth), Tesla – taking advantage of their stock’s higher price — instead consummated the entire sale quickly with the last bit dropping into place on September 9^th. This capital raise is estimated to have rather suddenly released some 11 to 12 million shares into the market, further exacerbating the stock’s price fall.

From the information I have been able to gather, what many people missed was the implicit or quietly negotiated connection between these two events. Apparently the S&P Index selection committee was concerned that once Tesla was admitted into the fund, index funds tied to the S&P 500 would have to purchase some 130 million Tesla shares, or about 18% of the stock’s “float”, to be in compliance with its rules. Since much of Tesla’s shares are closely held by company executives and long term investors, this buying requirement would have resulted in a rush of buying to accommodate the S&P’s rules, thus driving Tesla’s stock price up excessively. To dampen the anticipated stock price rise a bit and help its indexed funds, the S&P committee “encouraged” Tesla to enact its $5 Billion capital raise and thus put roughly another “available” 11 to 12 million Tesla shares out on the market.

While Tesla didn’t absolutely need the capital as it already had some $8.6 B on its books at the end of Q2, the added $5 Billion strengthens Tesla’s balance sheet. It is money in Tesla’s bank for capital expenditures to continue to build and equip its current two plants under construction – – Giga Berlin and Giga Texas – or to perhaps fund new model vehicle development or new battery plants or entirely new production plants in other parts of the world. To be able to accomplish that capital raise with under 1.5% dilution to its current investor’s stock holdings was a great achievement for Tesla.

With Tesla having done its part under this tacit understanding, the ball is now in the S&P 500’s court to announce Tesla’s inclusion into its fund. This could happen in the next 30 days, or at the latest after the release of Tesla’s Q3 earnings (where they will for the fifth quarter in a row show profitability) around the 3^rd week of October. A clue to the existence of this arrangement is that if the S&P 500 fund had arbitrarily refused Tesla’s inclusion, you can be sure Elon Musk would have tweeted his ire about Tesla’s exclusion with one or more acerbic comments. The fact that he has remained notably silent throughout this entire time is a strong clue that he knows that events will soon play out in Tesla’s favor.

The point of this explanation is to urge all of you readers and investors to stay calm and hang tight. It’s amazing – Tesla stock goes up 479% through 8/31 (1/2=$86.05; 8/31=$498.32), and everyone panics and wails when it takes a mere 33.7% drop over eight days (8/31=$498.32; 9/8=$330.21). Let’s see – up 479% minus 33.7% still equals up 284% year to date, and up 612% from a year ago. So who’s complaining? Few to no other stocks have done better. Buy more stock while Tesla’s stock price is that much lower. Get ready for a big stock price runup before and after Tesla’s Battery Day on September 22^nd. Hint: September 22^nd at Tesla will be far more than “Battery Day”.

**** Big doings at Giga Berlin. Word this week is that Tesla is installing eight monster casting presses in its new Giga Berlin plant. My prediction: Tesla will cast the entire (front and rear) “frame/chassis” of their German Model Y as a one piece unit. Currently at Fremont and Shanghai Tesla is only casting the rear half of this frame chassis as one piece, although the upgrade in each plant to a one piece front and rear casting is imminent. I am eagerly awaiting Tesla making this critical frame/chassis change to its Model 3. Expect Model Y production at Giga Berlin to start by July of 2021.

**** More big doings at Giga Shanghai. The Phase 2 plant expansion at Giga Shanghai is almost done and already prototype Model Ys are being produced on Shanghai’s new Model Y line. More than one has been photographed being transported barely disguised around various locations in Shanghai. My prediction: Chinese production of the Model Y that was not supposed to commence until 2021 will start in November or maybe even mid-October this Fall.

**** Giga Texas continues to move forward rapidly, though delayed a bit this week due to unusual and much need rainstorms in the Austin area. In Joe Tegtmeyer’s latest YouTube video, you can clearly see the outlines of the two main buildings, with a smaller third building site just becoming visible. As with all things Texas, this plant will be huuuge!

Image courtesy of Pixabay

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