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Although I overestimated Q2'20 deliveries by ~10k, Tesla nonetheless surprised Wall Street positively by reporting Q2'20 deliveries of 90,650 vehicles. As a result, talk about Tesla being included in the S&P 500 has once again intensified, because it's looking likely that it'll come one quarter sooner than many people, including I, anticipated.

I had assumed that S&P 500 inclusion is a pretty well understood topic in Tesla investment communities, but I've noticed quite a bit of confusion and a lot of misunderstandings, so I decided to write this post and do a deep dive into the topic.

Furthermore, although I believe that it's extremely hard to predict exactly what will happen to the stock price and I mostly just plan to sit back, relax, and watch the show, I am curious if I can make some estimations as to the magnitude of the forces at play, and if those estimations can help me make a more data based prediction as to what will happen to the stock price.

We'll find out the answers to these questions by the end of the post, but first let's cover some prerequisite information necessary for full understanding of this topic.

Table of Contents:
  1. The S&P 500
    -What is the S&P 500?
    -How to get included in the S&P 500
    -What happens when a new stock is included in the S&P 500
    -S&P 500 quarterly rebalancing
  2. S&P 500 Inclusion Case Studies
  3. TSLA's S&P 500 Inclusion
    -The big factors in play during TSLA's S&P 500 inclusion
    -Simplifying S&P 500 inclusion to a supply & demand issue
    -An estimation of the make-up of TSLA shareholders
    -TSLA post-inclusion stock price prediction

1: The S&P 500

What is the S&P 500?

The S&P 500 is an index comprising 500 of the U.S.' largest stocks, just like I could select 3 stocks, say TSLA, AAPL, and AMZN, group them together, and call it the "Frank 3". Nobody would care about my index though, but the S&P 500 is different. It's quite a big a deal according to the official factsheet:
The S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities. There is over 11.2 trillion indexed or benchmarked to the index, with indexed assets comprising approximately 80% of available market capitalization.
The index is one of the factors in computation of the Conference Board leading Economic Index, used to forecast the direction of the economy.
This isn't just something somebody came up with in their basement. Vast amounts of money track this prestigious index.

How to get included in the S&P 500

Once again taken from the official S&P 500 factsheet, its methodology is as follows:
Universe. All constituents must be U.S. companies.  
Eligibility Market Cap. To be included, companies must have an unadjusted market cap of USD 8.2 billion or greater.
Public Float. Companies must have a float market cap of at least USD 4.1 billion.
Financial Viability. Companies must have positive as-reported earnings over the most recent quarter, as well as over the most recent four quarters (summed together).
Adequate Liquidity and Reasonable Price. Using composite pricing and volume, the ratio of annual dollar value traded (defined as average closing price over the period multiplied by historical volume) to float-adjusted market capitalization should be at least 1.00, and the stock should trade a minimum of 250,000 shares in each of the six months leading up to the evaluation date. 
Sector Representation. Sector balance, as measured by a comparison of each GICS sector's weight in an index with its weight in the S&P Total Market index, in the relevant market capitalization range, is also considered in the selection of companies for the indices. 
Company Type. All eligible U.S. common equities listed on eligible U.S. exchanges can be included. REITs are also eligible for inclusion. Closed-end funds, ETFs, ADRs, ADS, and certain other types of securities are ineligible for inclusion.
Tesla fulfills all but one of these requirements:
  • Tesla is a U.S. company
  • Tesla's market cap is well over $8.2B
  • Tesla's float market cap is well over $4.1B
  • Tesla's annual dollar value traded is currently around $1.5T, so the ratio to float adjusted market capitalization is around 7.0, and the lowest number of shares traded in a month during the past 6 months was June with volume of 256M shares.
  • Tesla is considered "consumer discretionary" by the GICS, which is the third largest sector represented in the S&P 500 at 10.8%. The largest sector is Information Technology at 27.5%.
  • Tesla is a U.S. common equity. - Factsheet 

The only requirement Tesla doesn't currently fulfill is the financial viability requirement, because it has never shown TTM (Trailing Twelve Months) GAAP profitability.

According to the official S&P 500 methodology, this is how and when inclusions are decided upon:
Timing of Changes S&P 1500 Composite Indices. Changes to index composition are made on an as-needed basis. There is no scheduled reconstitution. Rather, changes in response to corporate actions and market developments can be made at any time. Index additions and deletions are announced with at least three business days advance notice. Less than three business days' notice may be given at the discretion of the Index Committee. Announcements are available to the public via our Web site,, before or at the same time they are available to clients or the affected companies. 
Announcements. Announcements of additions and deletions for the S&P 500, S&P MidCap 400, and S&P SmallCap 600 are made at 05:15 PM Eastern Time. Press releases are posted on our Web site,, and are released to major news services.
To summarize, if Tesla posts a profit this quarter and thereby shows TTM GAAP profitability, it will fulfill all the requirements necessary to be included in the S&P 500. It'll ultimately be up to the committee to actually include TSLA, but considering their objective is to "track the market performance of U.S. stocks trading on U.S. exchanges", it'd be very strange to exclude the currently #13 largest U.S. stock, which at this rate will enter the top 10 in another one or two trading days.

If you've been following the TSLA S&P 500 story, you might've heard some people mention that the S&P committee has previously changed the rules to target and exclude one very specific company, Snap. The S&P changed the rules to exclude new companies with multiple share classes from the index. Until now, I assumed that Snap had qualified for the S&P 500 and that because the committee did not want Snap in it for some reason, they came up with this rule to specifically exclude Snap. However, the first thing I found out when looking into this was that Snap never actually qualified for the S&P 500:

Snap has only been profitable during one quarter in its history, which by the way was after the S&P rule change, and it has never shown TTM GAAP profitability, so it never qualified for the S&P 500 in the first place. So what did happen?

According to this CNBC article, Snap has different share classes. The Class A shares that are publicly tradable on the NYSE, have no voting rights whatsoever, whereas Class B shares are reserved for executives and pre-IPO investors and have one vote per share, and Class C shares held exclusively by the two founders have ten votes per share. This is similar to the Google classes of shares, but in the case of Google the one vote per share shares are publicly tradable. Snap is different from Berkshire Hathaway, which introduced two classes of shares primarily to offer a cheaper way to invest in the company, because the Class A shares were so expensive.

It really seems like the S&P rule change to exclude stocks with multiple share classes going forward was primarily to signal their disapproval of this type of corporate governance, in which founders hold on to an abnormal amount of control of the company, and exclude post-IPO investors from having any input in the company whatsoever. Although this example is occasionally brought up as evidence why TSLA might not be included even if it fulfills the final profitability requirement, I think it's extremely unlikely TSLA will not be included once it shows TTM GAAP profitability.

What happens when a new stock is included in the S&P 500

According to the S&P's official site, as of June 30, 2020:
There is over USD 11.2 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 4.6 trillion of this total.
The S&P 500's total market cap at the time was $25.64T, which means that $4.6T / $25.64T = 17.9% of all publicly available shares of S&P 500 companies were held by funds indexed to the S&P 500, and ($11.2T - $4.6T) / $25.64T = 25.7% of all publicly available shares of S&P 500 companies may have been held by funds benchmarked to the S&P 500 (more on the difference between "indexed" and "benchmarked" soon).

It is important to note that the S&P 500 is weighted by float-adjusted market capitalization. For Tesla, this means that shares held by Elon are excluded from the market cap calculation on which TSLA's S&P 500 weighting is based. Here's an example:

Say the S&P 500 only had 5 stocks: TSLA, AAPL, UBER, NVDA, and NFLX. These companies currently (12th of July) have the following share prices, shares outstanding, and public floats taken from Marketwatch:

SP: $1,545
Shares outstanding: 185M
Public float: 145M

SP: $385
Shares outstanding: 4,330M
Public float: 4,330M

SP: $33
Shares outstanding: 1,730M
Public float: 890M

SP: $420
Shares outstanding: 615M
Public float: 590M

SP: $550
Shares outstanding: 440M
Public float: 430M

The total market cap of the S&P 500 would in this case be calculated by multiplying the stock price of each company with the number of shares in the public float, and then adding them all together:

$1,545 * 145M + $385 * 4,330M + $33 * 890M + $420 * 590M + $550 * 430M = $2,4T

TSLA's weighting in the index would in this case be calculated as follows:

$1,545 * 145M / $2.4T = 9.3%

In this scenario, all funds indexed to the S&P 500 will have to keep 9.3% of their assets invested in TSLA, and thus 9.3% of all assets indexed to the S&P 500 will be invested in TSLA. Funds indexed to the S&P 500 are passive funds, and have no leeway in this. If TSLA stock goes up a lot and somehow becomes 15% or 20% of the S&P 500 index, these funds will then have 15% or 20% of their total assets in TSLA.

Whereas funds indexed to the S&P 500 are passive funds and make no investment decisions, funds benchmarked to the S&P 500 are actively managed funds and do have freedom in what stocks they invest in. Being benchmarked to the S&P 500 means that the fund's performance will be compared to the performance of the S&P 500, and therefore the fund manager will be praised for gains made compared to the S&P 500 and blamed for losses made compared to the S&P 500.

I do not have experience working in the mutual funds industry, so I do not know exactly how fund managers approach the fact that their performance will be measured against the S&P 500, but I imagine that different funds and fund managers have different approaches. I imagine that some funds are very conservative, take the S&P 500 as their base, and only deviate from it slightly where they think they can eek out slightly better returns. As a results these funds behave quite similarly to S&P 500 index funds. However, I'd imagine there are also funds that deviate from the index more, and even funds that only use the S&P 500 as a benchmark, but basically have their own unique investment strategy and philosophy.

Regardless, TSLA is a very large stock, and if it were to be added to the S&P 500, it would make up around 1% of the entire index. Previously, fund managers that were skeptical about TSLA or simply didn't know a lot about TSLA could ignore it, but this is no longer the case. Even if a fund has its own unique investment strategy, after TSLA is in the S&P 500, a 50% drop in TSLA will mean a more than -0.5% loss to the index and a 100% gain in TSLA will mean a more than 1% gain. The 20-year annualized average return of the S&P 500 is currently 5.9%, so this matters quite a bit, and therefore at the very least all fund managers, whose funds are benchmarked to the S&P 500, will have to take a serious look at TSLA and consider whether they think it will under- or outperform the rest of the index. They can choose to not own TSLA, but if that turns out to be a mistake, they will have to answer for it, and be able to articulate why they thought it would underperform the index.

So to summarize, upon inclusion into the index, some of the $4.6T indexed to the S&P 500 will for certain be liquidated, in order to buy 17.9% of TSLA's 146.36M shares float, which comes out to 26,198,440 shares. Furthermore, an additional $6.6T benchmarked to the index will have to decide whether to own 25.7% of TSLA's 146.36M shares float, which comes out to 37,614,520 shares. Some funds will allocate that exact amount to TSLA, some bearish funds will decide to allocate less, and some bullish funds will decide to allocate more. If the bearish and bullish benchmarked funds were to even out, funds indexed and benchmarked to the S&P 500 could end up owning a combined 63,812,960 shares.

Some actively managed benchmarked funds are limited by what stocks they can invest in, and are not allowed to invest in stocks outside of the S&P 500, or are not allowed to hold stock of companies that are unprofitable. These funds are unable to buy TSLA until after Q2 ER, assuming GAAP profits, or until after the official inclusion. However, other funds are not bound by such rules and may have bought TSLA many years ago, believing that it'd outperform the S&P 500 index, or months ago, foreseeing that TSLA would be included in the S&P 500 soon.

As a result, it's hard to calculate the exact number of shares that funds will buy throughout this whole S&P 500 inclusion event. It probably won't be 64M shares, because even if a lot of the benchmarked funds are bullish and want to go overweight TSLA, a number of them likely have already owned TSLA for a while. However, it'll be at least well north of 26M shares.

Another thing that is hard to know for sure is exactly when all this buying will take place. According to Rob Maurer's recent podcast on the S&P 500 topic, an insider told him that index funds can start buying a month prior to the announcement and speculate on which companies will be added next, and can also buy until a month after the announcement, but I'm not buying this. The article that Rob refers to mentions that index fund portfolio managers have the freedom to spread out their buying over a few days or a few weeks, but it only states that hedge funds and speculators can speculate on which stocks will be added in the future, not index funds. A TMC poster also expressed a similar opinion, and quoted the prospectus of the SPY, one of the largest S&P 500 index funds:
Specifically, the Trustee is required to adjust the composition of the Portfolio whenever there is a change in the identity of any Index Security (i.e., a substitution of one security for another) within three (3) Business Days before or after the day on which the change is scheduled to take effect.
My own conclusion is that index funds can probably start to buy around the time of the announcement, and will try to buy most of the shares they need within a few days after the inclusion happens. They might try to time some of their buys in the weeks after inclusion for a better price, but doing so for a majority of the shares they need, is extremely risky. Of course speculators that plan to take advantage of buying concentrated around the announcement and inclusion will try to take advantage of this and buy much sooner, so in that way it does get spread out a bit more. And obviously a lot of benchmarked funds will have more leeway and are allowed to speculate on upcoming inclusions, and buy ahead of time, or well after the inclusion happens.

S&P 500 quarterly rebalancing

Every quarter the S&P 500 is rebalanced. I've seen some people who think this works as follows. If the S&P 500 consisted of the following four stocks:

SP: $100
Shares outstanding: 20
Public float: 10
Float-adjusted market cap: $1,000

SP: $200
Shares outstanding: 20
Public float: 20
Float-adjusted market cap: $4,000

SP: $10
Shares outstanding: 40
Public float: 30
Float-adjusted market cap: $300

SP: $100
Shares outstanding: 60
Public float: 40
Float-adjusted market cap: $4,000

The S&P 500 total float-adjusted market cap would then be $1,000 + $4,000 + $300 + $4,000 = $9,300.

I've seen some people who believe that TSLA's weighting would then be $1,000 / $9,300 = 10.8%, and that a fund that managed $1,000, would free up $108 and invest it in TSLA. Thus, if TSLA's stock price doubled to $200 the next day before the fund could invest, it'd only buy $108 / $200 = 0.504 shares rather than 1.08 shares.

If this were how it worked, a company, whose stock price doubled in between two rebalancings, would see S&P 500 index funds sell off half of their stakes in the stock, only to double their stakes once again after rebalancing, because it wants to keep its $ value invested in TSLA the same. This would create enormous, unnecessary market volatility. Alas, this is not how it works. How it does work is as follows:

An S&P 500 index is created with 10 + 20 + 30 + 40 = 100 shares, and each company receives its appropriate number of shares in this index. TSLA would have 10 shares and 10% of the index. An index fund with AUM (Assets Under Management) of $930, a tenth of the total S&P 500 index, would have to buy 10% of the index; they would have to buy 10 shares, 1 share in TSLA, 2 shares in AAPL, 3 shares in NFLX, and 4 shares in AMZN. It doesn't matter whether the price of those individual shares go up or down.

The reason that the S&P 500 does a rebalancing each quarter is because of situations like this:

SP: $100
Shares outstanding: 20 -> 30
Public float: 10 -> 20
Float-adjusted market cap: $1,000
TSLA did a public offering of 10 shares

SP: $200
Shares outstanding: 20
Public float: 20
Float-adjusted market cap: $4,000

SP: $10
Shares outstanding: 40
Public float: 30
Float-adjusted market cap: $300

SP: $100
Shares outstanding: 60
Public float: 40 -> 30
Float-adjusted market cap: $4,000
AMZN did a share buyback of 10 shares

Now, the new S&P 500 index would still have 20 + 20 + 30 + 30 = 100 shares. However, TSLA would now be 20 shares and 20% of the index. A fund with AUM of $930, would now have to own 2 TSLA shares, 2 AAPL shares, 3 NFLX shares, and 3 AMZN shares.

In summary, S&P 500 quarterly rebalancing is mostly just to adjust for changes to the public floats of companies. There are some other rebalancing rules, but these rarely, if ever, come into play, and are along the lines of "no more than 23% of the entire index can be in a single stock".

2: S&P 500 Inclusion Case Studies

For a lot of stocks, not that much happens when they are included in the S&P 500. This is due to most stocks simply being moved from the S&P 400 mid cap index to the S&P 500 large cap index, because of an increase in market cap. In this case, institutions can simply move shares from their S&P 400 funds to their S&P 500 funds, and adjustments that have to be made are relatively small.

However, sometimes a stock that was previously not in any of the S&P indices is added to the S&P 500, because it previously did not qualify based on one of the requirements, such as a lack of profitability. In this case, the amount of shares that need to be bought, and the resulting affect on the stock price are more profound.

Although as we'll later discuss no S&P 500 inclusion before has ever quite been the same as TSLA's upcoming inclusion, to give some context as to what might happen to TSLA stock price upon inclusion, let's first do a few case studies of other companies that were included directly into the S&P 500, without being in any S&P indices previously.


Because of this recent Yahoo! Finance article that compared YHOO's S&P 500 inclusion to TSLA's upcoming inclusion, I wanted to do a case study on YHOO's inclusion and see if we could learn anything from it. However, I don't think much can be learned from it.

The biggest issue is the lack of available data. I have been unable to find a more detailed YHOO stock chart than the one above, because YHOO was acquired by Verizon in 2017. Furthermore, Google Search also isn't particularly helpful, because I cannot even find a single news article talking about YHOO's S&P 500 inclusion, let alone any speculation about an upcoming inclusion ahead of the announcement. And most importantly, although the CNBC article seems to suggest YHOO's inclusion was similar to TSLA's, I can't even find out for sure whether YHOO was in the S&P 400 before being included in the S&P 500 or not.

Therefore, it seems like all we can learn from YHOO is:
  • It was included in late 1999.
  • The stock shot up some amount, 64% in five trading days if the article is to be believed, but this was around the time of the dot com bubble.
  • YHOO's market cap was large, but only ~0.5% of the S&P 500 at the time, whereas TSLA will be around 1%.
  • YHOO's stock price completely crashed not long after inclusion... as part of the dot com bubble bursting.
This doesn't give us much to go on when looking at TSLA.


TWTR 2018

TWTR 23/4/18 - 30/6/18

NYSE 23/4/18 - 30/6/18

Twitter announced Q1'18 earnings on the 23rd of April 2018, the S&P 500 inclusion announcement happened on the 4th of June, and it was officially included as of the 7th of June. I was unable to find any mentions to an upcoming TWTR S&P 500 inclusion through Google Search in the first half of 2018 before the official announcement on the 4th of June, so it seems like it mostly came as a surprise.

Looking at Twitter's profits at the time, it only barely made it in by achieving $15M of TTM net income, and it was only Twitter's 2nd profitable quarter ever, so I doubt many people were expecting TWTR's S&P 500 inclusion before Q1'18 ER was announced, but looking at how strong TWTR's stock held up during bad macros during the last week of May, I would not be surprised if a number of active funds were positioning themselves ahead of what they knew would be TWTR's upcoming S&P 500 inclusion.

TWTR's total shares outstanding at the time were 766M. It's tough to find out what its public float was at the time, but assuming the number of shares held by insiders hasn't changed too much since then, it's likely its public float was approximately 735M shares, giving TWTR a float-adjusted market cap of around $22.1B at the time of the Q1'18 ER.

The S&P 500's market cap was ~$23T at the time, meaning TWTR made up about 0.1% of the S&P 500. I haven't been able to find out the exact amount of money indexed and benchmarked to the S&P 500 at the time, but assuming this has also not changed too much in the past two years, passive index funds had to buy approximately 735M * 17.9% = 132M shares, and actively managed funds had to own approximately 735M * 25.7% = 189M shares to be equalweight.

Starting a few days before the official S&P 500 inclusion announcement and ending 1-2 weeks after, TWTR trading volume was much larger than usual. From the 1st of June until the 15th of June, 567M shares were traded in 11 trading sessions. It's hard to say exactly what percentage of trades are 'real trades' where a share goes from one long investor to another. It probably depends on the stock and the situation, but I think it's safe to say the majority of trades are made by high frequency traders, market makers, day traders, etc.

Either way, it looks like there was enough volume to allow all of the index funds to buy their 132M shares, and likely some active funds to add to their positions as well. However, I reckon the vast majority of active funds already positioned themselves ahead of inclusion. I don't think that 567M shares traded during those 11 trading days allowed for over 300M shares worth of buying by passive and active funds as part of the S&P 500 inclusion.

TWTR stock in total went up about 50% from Q1'18 ER to S&P 500 inclusion. It seemed to hold on to its new valuation very well for some time in spite of bad macros. Although, looking at the 2018 stock chart, you might think that the S&P 500 inclusion's effect on the stock price was not permanent and was undone late July, that'd be overlooking an important piece of information, because on July 27th Twitter announced Q2'18 earnings, a decline in monthly active users, and gave very weak guidance. Without that, it seems quite possible that Twitter would've held onto its higher post-inclusion valuation.


FB July 2013 - June 2014

FB 29/10/13 - 31/12/13

NASDAQ 29/10/13 - 31/12/13

Although many people believe TWTR's S&P 500 inclusion is the best comparison to TSLA's, I think FB is more similar in one particular way, namely that its inclusion wasn't entirely unexpected. Although just like TWTR, TSLA's last requirement it needs to fulfill to be eligible is profitability, unlike TWTR it is not an unexpected inclusion, and some people have been talking about it since at least late last year. This is similar to FB, whose last requirement was that it had to have been a publicly traded company for at least 6-12 months, and whose inclusion was also not totally unexpected. This article and this article indicate that people were expecting FB to be included some time in the near future as early as early 2013. FB's Q3'13 earnings were on October 30th, the official inclusion announcement came on December 11th, and the inclusion happened more than a week later after market close on December 20th.

FB's outstanding shares at the time were 1.87B, giving it a market cap of $90-100B. Once again, I have not been able to find historical data for the public float, but assuming the shares in the hands of insiders stayed about the same since this period at 20M, FB's float-adjusted market cap was about the same as its total market cap. It's interesting to note that Zuckerberg's shares are considered part of the public float of FB.

The S&P 500's market cap at the time was ~$17T, meaning FB made up about 0.5% of the index upon inclusion. Once again assuming the amount of money tracking the S&P 500 stayed about the same, because I can't find historical data for this, means approximately 1.85B * 17.9% = 331M shares had to be bought by index funds, and 1.85B * 25.7% = 475M shares had to be owned by funds benchmarked to the index for them to be equalweight.

Interestingly, although FB trading volume was on the high side from the day the inclusion was announced until the day after it was officially added, it wasn't unusually high except for on the very day it was added. On that day ~240M shares traded hands, and on the 8 trading days following the announcement 844M shares were traded. I'd imagine that there being such a large gap between the announcement and actual inclusion allowed for the buying to be more spread out. Volume of 884M, and maybe some additional volume in the 1-2 weeks after inclusion, might've allowed 331M shares to flow to index funds, but only barely when you consider that the majority of trades are usually attributable to day traders, high-frequency traders, market makers, etc. I'd imagine that the vast majority of funds benchmarked to the S&P 500 had already positioned themselves before the announcement. This was likely made easier by the fact that FB was already a profitable company when it IPO'ed, because I've heard TMC member ReflexFunds, who has written extensively about TSLA's S&P 500 inclusion since late last year, mention that some funds are only allowed to invest in profitable companies.

The reaction of FB's stock price to the S&P 500 inclusion was mild, but still noticeable. FB stock was in a little bit of a slump during the 1-2 months before the inclusion, due to some concerns over teenagers preferring alternative social networks. However, from a week or so before the announcement until after the official inclusion, FB stock rallied from ~$47.5 to ~$57.5 for an increase of about 20%. Although there was a small dip after to $55, it was temporary, and FB being a growth company never saw its stock drop below these levels ever again.

3: TSLA's S&P 500 Inclusion

Although these case studies give some useful context when looking at what might happen to TSLA upon its inclusion in the S&P 500, TSLA's inclusion is unique and unprecedented in a number of ways. It's the largest ever in terms of market cap, as well as when looking at what percentage of the index it will make up after inclusion. It's also unique in how large the option market surrounding TSLA is, and in the extent to which delta hedging mechanisms are affecting the stock. Last but certainly not least, it's unique in how different people's opinions are on the true value of this stock.

The big factors in play during TSLA's S&P 500 inclusion

1) Passive index funds buying

We've calculated that the number of shares that will have to be bought by passive index funds is approximately 17.9% of TSLA's 146.36M shares float, which comes out to 26,198,440 shares. The only way this number could turn out to be incorrect is if the dollar amount indexed to the S&P 500 as reported by the S&P is inaccurate. Barring that, ~26M shares will 100% have to be bought by index funds, mostly between the announcement and the official inclusion, and perhaps a smaller amount in the weeks after inclusion.

2) Active benchmarked funds buying

We've calculated that the number of shares that active funds benchmarked to the S&P 500 in order to be equalweight is 25.7% of TSLA's 146.36M shares float, which comes out to 37,614,520 shares. This once again assumes that the number reported by the S&P is accurate. It is more difficult though to figure out what sort of buying pressure will stem from this. I don't think I know enough to give a good estimation, but I'll just share a few things I've looked into.

First of all, I've wondered about what it actually means when some of the big institutional holders say they have millions of TSLA shares. Companies like Vanguard and Blackrock for example, in addition to managing mutual funds and index funds that hold shares in companies, they also claim to hold shares in companies themselves. Looking at institutional ownership in TSLA and AAPL, Vanguard and Blackrock are among the top institutional investors. Vanguard in particular is an investment management company, not an investment company, and is 100% owned by its customers. So are the shares they report as such part of their asset management? Do these shares actually belong to Vanguard's customers who asked Vanguard to manage their assets? If so, is any of this benchmarked to the S&P 500? I'm not sure.

The reason I looked into this is because if you add up all the AAPL shares owned by mutual funds, you only get to about 800M shares, which is only about 16% of the AAPL float. Even if every single one of these funds used the S&P 500 as its benchmark, that'd still mean that mutual funds as a whole are significantly underweight AAPL. I'd say it's more likely that other, non-mutual funds assets are also benchmarked to the S&P 500, perhaps some of the shares that are reportedly held by companies such as Vanguard and Blackrock. When you add up all the mutual funds invested in TSLA, it comes out to well over 30M shares, which is well over 20% of its float, meaning more mutual funds hold TSLA than AAPL. Most of the TSLA funds are growth funds, and unlikely to be indexed to the S&P 500, but still.

Another thing I've looked into is who uses the S&P 500 as their benchmark. It appears that TSLA's largest investor, Baillie Gifford, does not use the S&P 500 as its benchmark, but rather MSCI indices. TSLA's second largest investor, Capital World Investors, also seems to use MSCI rather than the S&P. I haven't been able to find as much about benchmarks used at companies like Blackrock and State Street Corp, and I could also imagine that certain assets being benchmarked to an MSCI index doesn't completely rule out it also being benchmarked to the S&P 500 in some way, and therefore being included in the S&P's statistics. Bigger numbers make the S&P look better after all.

One last piece of data is that according to, there are 316 mutual funds that hold TSLA, 560 mutual funds that hold NFLX, 969 mutual funds that hold AMZN, and 1045 mutual funds that hold AAPL.

I realise that all this raises more questions than it answers, but I don't think I have enough to make even a semi-accurate estimation to the number of TSLA shares that active funds will buy as a result of S&P 500 inclusion. I'd imagine there'll definitely be some amount of buying, but my guess is it'll be less severe than the 26M shares that will have to be bought by index funds.

3) The large options market and resulting delta hedging mechanisms

I've written about this topic before a number of times, so if you want to learn in-depth about how this works, I suggest you check out these two blog posts:
The first post has a section explaining how delta hedging works, and the second post dives into the TSLA options market and how insanely large it is.

To put it extremely simply, option buyers bet on the stock going in a certain direction. In order for the market makers who sell these options to not lose money when the stock moves in that direction, they have to buy shares as the stock goes up, and sell shares as the stock goes down. This means that when the stock goes up, more shares will be bought by market makers, further amplifying the movement upwards. And when the stock goes down, shares will be sold by market makers, further amplifying the movement downwards. Basically, due to the large size of the TSLA options market, any stock movement is amplified. Whereas a normal stock might move 2% on good news, TSLA might move 5% or 6%.

With that being said, it does seem like the delta hedging mechanisms are getting slightly less strong than they were before. Somebody on TMC shared this a while back, which keeps track of the delta hedging requirements of market makers. In February and March, there were times when market makers had to buy/sell 15-20M shares for a $100 price movement to stay delta neutral. Recently this number has been hovering around 5M shares. A $100 price movement is a smaller percentage movement now that the stock is trading at $1,500 than it was when the stock was trading at $800 and $400 though, so the delta hedging still has a fairly strong influence on stock price movements, but a little less than before. I believe the biggest reason for the dampened effect is that a lot of the 2021 and 2022 LEAPs are already deep ITM, so these options have minimal effect on delta hedging requirements at the current share price.

The table also shows that market makers currently have to own ~40M TSLA shares in order to be delta neutral, although these numbers are likely somewhat smaller in reality, because the table is calculated based on all open interest, even though market makers' true delta exposure is lower than that. Regardless, Citadel Securities LLC, a TSLA market maker, reported owning almost 8M shares as of the middle of April. I wouldn't be surprised if at this point Citadel owns close to 15M TSLA shares, and is forced to be the largest holder of TSLA shares just to stay delta neutral.

The effect all this has on S&P 500 inclusion is that any forced buying by passive and active funds will lead to more buying by market makers in order to stay deltra neutral. If the buying of 26M shares pushes the stock to $2,200, perhaps market makers will have to buy another 10M shares and push the stock price up further towards $2,500.

4) TSLA Price Targets

This is also something I've discussed before as one of the mechanisms that contributed to TSLA's meteoric rise in Q1'20. I'm talking about the fact that opinions on the true value of TSLA vary greatly. Here is a list of current TSLA Wall Street price targets, courtesy of TMC member dl003:
Piper Sandler: $2,322
JMP: $1,500
Credit Suisse: $1.400
Goldman Sachs: $1,300
Wedbush: $1,250
Jefferies: $1,200
Deutsche Bank: $1,000
Roth Capital: $750
Morgan Stanley: $740
Baird: $700
Royal Bank of Canada: $615
Bank of America: $485
Citi: $450
Cowen: $300
Barclays: $300
J.P. Morgan: $295
GLJ Research: $87
Even taking away the $87 target by the obvious bear troll and oil shill, Gordon Johnson, the street's highest price target is about 8 times the lowest. This excludes ARK's price target of $7,000 (with a $15,000 bull case), my own target of ~$25,000 (bear case ~$8,000 and bull case ~$60,000), Ron Baron who thinks Tesla will do $1T in revenue in 10 years, and the price targets of many other bullish retail investors.

Although there are undoubtedly large investors who will happily take profits, or even sell their entire position at $1,800 or $2,000, there are likely just as many investors who will not sell anything below $5,000. This is not common, and has undoubtedly contributed to the crazy run TSLA has been on over the past 12 months. We'll get back to how this will influence the S&P 500 inclusion in more detail later.

5) Speculators and traders

Lastly, we need to keep in mind that, as always, there will be speculators and traders. These entities are always present, but more so when it comes to TSLA because speculators/traders profit off of volatility, and TSLA is arguably the most volatile stock in the market right now. The effect of speculators and traders on TSLA will be further amplified with S&P 500 inclusion in play, because not just are some able to speculate on and front-run the S&P 500 inclusion, volatility will also likely be much higher leading up to and during the event. We'll talk more about how these entities will influence the stock price in the next section.

Simplifying S&P 500 inclusion to a supply & demand issue

I hope you're still with me, because this entire S&P 500 inclusion thing is admittedly pretty complicated. Fortunately enough, now it's time to simplify things, because in essence a stock's price is determined by simple supply and demand. At $1 per share everybody would want to own TSLA, and at $1,000,000 per share probably nobody would. The current equilibrium stock price where supply of ~145M shares (ex-Elon) exactly matches demand of 145M shares is ~$1,500.

As we've discussed, S&P 500 inclusion will lead to additional demand for TSLA of 26M+ shares at any price from index funds, and potentially more somewhat price-inelastic demand from benchmarked funds that want to be equalweight TSLA. The 26M shares of demand at any share price from index funds means that 26M shares worth of current TSLA investors will be able to ask any price they want for these shares. The question thus becomes, at what stock price are current investors willing to part with 26M+ shares? Will it be $1,800? $2,000? $2,500? More? Another way in which I like to describe this is as follows:

Imagine an ice cream truck just sold 145M ice creams to 145M children at $1,500 a piece. Now imagine a school bus arriving with an additional 26M children, who are so hot, sweaty, and hungry, that they will buy ice cream at any price. The question now is at what price the 26 millionth kid will be willing to sell his ice cream to one of the hungry sweaty kids.

In essence this is what S&P 500 inclusion is, but in reality two things complicate this simple scenario. First of all, speculators and traders will not only be buying up some shares before the actual inclusion (you can think of them as ice cream scalpers), they will also be speculating on what the peak will be, because they all want to make maximum profit. If a speculator buys up 100k shares, and in total speculators buy up 10M shares pre-inclusion, this 100k shares speculator would ideally wait until investors sell 25.9M and the stock price peaks before selling off quickly dumping his own 100k shares for max profit to the last index funds who need to buy shares. With all speculators/traders trying to aim for this peak, it's likely there will be some sort of drop off at some point after S&P 500 inclusion, but it's impossible to predict when this happens, and how large the dip will be.

The second thing that complicates the simple scenario laid out is delta hedging. Imagine that demand for TSLA stock drops by 26M at a stock price of $2,500, allowing index funds to buy the shares they need. Due to the rise in stock price, at this point market makers might also have scooped up an additional 10M share to stay delta neutral, meaning that at $2,500 an additional 10M shares still have to be bought. Perhaps investors are willing to part with these for $2,850, but by then market makers will need more shares to stay delta neutral, and perhaps that additional buying would further push up the stock price to $3,000, before finally market makers are delta neutral and index funds have been able to accumulate a total of 26M shares.

In summary, simple supply & demand dictates that the forced buying of 26M+ shares should drive up the stock price to some extent, further amplified by the delta hedging mechanisms, as well as speculators/traders, who also spread out the buying to some extent by front-running, but whether they're front-running inclusion to the tune of 1M, 10M, or 20M+ shares, nobody knows for sure. Last but not least, something not mentioned thus far is the fact that TSLA short interest is still quite high, so additional short covering could also add more fuel to the fire.

An estimation of the make-up of TSLA shareholders

According to this spreadsheet, which I shared in my TSLA Holders blog post, the top 60 TSLA shareholders (ex-Elon) hold approximately 115M shares out of the total 145M + ~20M (synthetic shorted shares) = 165M shares. All of the data in this section is based on the end of Q1'20, which is the most recent point in time from when we have accurate data of the make-up of TSLA shareholders, due to the nature of 13F filings.

Furthermore, adding up all the shareholders in's list with 20,000 shares or more gives another 22.5M shares or so, and I'd estimate that a little over 140M shares in total were held by institutions, index funds, and mutual funds at the end of Q1'20. Furthermore, Citadel, which appears to be TSLA's biggest market maker, held an additional ~7.5M shares as of that date. Meaning, there were 165M - 140M - 7.5M = 17.5M shares unaccounted for, which means they were most likely held by retail investors.

Lastly, let's further break down those 140M shares owned by institutions. According to this website, ETFs own approximately 6.8M shares of TSLA. Let's round that up to 7.5M, and now we get the following make-up of TSLA's shareholders:

Elon Musk: 40M
Institutions & Mutual Funds: 132.5M
ETFs: 7.5M
Citadel, TSLA Market Maker: 7.5M
Retail Investors: 17.5M
Total: 205M
Shorts: -20M

However, the end of Q1 is more than three months ago. We know that short interest declined to ~15M at the end of June, but that was when the stock price was ~$1,000. I would guess short interest is around 12.5M right now. Citadel also probably owns more like 12.5M shares for delta hedging purposes, and I wouldn't be surprised if retail investors are closing in on 20M shares if Robinhood sentiment of the last 3 months is anything to go by, because more than 280k Robinhood users have added TSLA to their portfolio since the end of Q1.

Therefore, I expect the make-up to look more like this today:

Elon Musk: 40M
Institutions & Mutual Funds: 117.5M
ETFs: 7.5M
Citadel, TSLA Market Maker: 12.5M
Retail Investors: 20M
Total: 197.5M
Shorts: -12.5M

TSLA post-inclusion stock price prediction

So now the core questions that need answers are:
  1. At what price point are mostly institutions and to a smaller extent retail investors willing to sell enough TSLA shares for index and benchmarked funds to buy the shares they need (at least 26M+ shares)?
  2. How many additional shares will market makers have to buy to stay delta neutral during the rise in share price.
  3. How many shorts will cover?
Although I have been able to form a somewhat clearer picture than I had before I started writing this post, it sadly enough turns out to be impossible to give exact answers to these questions. However, one can get a feel for this by looking at who the largest TSLA shareholders are. I wrote a blog post with details on the ~60 largest shareholders last month, and some of them have recently made comments about TSLA:
The Baron partner fund has not sold any TSLA shares for the past three quarters. Ron is highly unlikely to sell a single share before Tesla is worth over a trillion dollars.

Baillie Gifford sold some shares in Q1'20 for the first time in two years. Perhaps they took profits, perhaps it was COVID-19 related, but TSLA's biggest shareholder is unlikely to sell a large number of shares given recent comments.

ARK is forced to take some profits as the stock price goes up, due to its funds' limitations, but it only sells the minimum.

Although there are some less convincing bulls such as JP Morgan and Goldman Sachs, and I could see various mutual funds focused on growth selling or taking profits as TSLA enters the S&P 500, the vast majority of TSLA's largest investors believed in this company 5+ years ago when it only produced 30-40k Model S vehicles per year, so their battle-hardened conviction at this point must be very strong. Take Geode Capital for example. Geode has held TSLA since the third quarter of 2013, and added shares to its position every single quarter. So far Geode has never sold any shares.

One last thing to consider is that TSLA isn't just any high growth stock. It's legitimately going after multiple multi-trillion dollar markets, has no competition to speak of, a 10+ year long proven track record of execution, and a leader who lands rocket in the ocean. If there's any stock out there for which you can defend very high valuation bull cases, it is TSLA. Presumably a lot of investors would happily sell for $10,000 today, but even this could look like a bargain in 10-15 years, so $2,000, $2,500, and even $3,000 could be a really really really good bargain if one's investment horizon is long enough.

So there we have it. An investor base with an unusually high conviction, a ton of buying pressure on the horizon, and mechanisms that will accelerate any run-up in stock price. So what will TSLA stock price actually end up at post S&P 500 inclusion? The obvious answer is: "I don't know and I can only guess and tell you how I feel about it". So keep in mind that I could turn out to be very wrong. There is too much missing data to attach a high conviction to my prediction, and there are outside factors (macro-economics, COVID-19) that could change things drastically.

With that being said, barring crazy macros, I reckon stock price will almost certainly at least temporarily peak above $2,000 if TSLA is indeed included in the S&P 500 in the upcoming weeks/months. I also think there's at least a 50-60% chance the stock will more-or-less be permanently revalued above $2,000, especially considering I expect Q3 and Q4 to be very strong, so I think a pull back off of bad earnings in the second half of the year is unlikely.

I even think there's some chance (maybe ~10%) that TSLA will be permanently revalued above $3,000 within a couple of weeks after inclusion. I also find it very difficult to put a ceiling on where TSLA could go to. Although I think it's quite unlikely, I'd be careful to completely rule out a crazy (probably temporary) squeeze well in excess of $3,000 due to a shortage of shares, perhaps to $4,000-5,000 or so. although I'm doubtful that a stock price that high is sustainable at this point in time.


So in summary, if I had to guess, I'd put my money on TSLA's average stock price being somewhere in between $2,000 and $3,000 in the weeks following S&P 500 inclusion, unless macros take a turn for the worse.

Of course there's a pretty good chance I turn out to be wrong in some way, however, I am highly confident that a different prediction of mine will turn out to be correct: TSLA's S&P 500 inclusion will be extremely interesting and exciting to follow. We're guaranteed some massive trading volumes, very large price increases and probably decreases, and just an overall exciting show to watch.

So to TSLA longs (especially the ones who don't own options) I say: sit back, relax, and enjoy the show.

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