Tesla Dialogue with "Miss Wood": Index funds are too large, not all companies should go public

Yesterday, Tesla CEO Elon Musk had a 100-minute conversation with renowned Wall Street investor "Wood Sister". Here are the key points summarized by Wall Street News.

Tesla Dislikes Index Funds

On December 18th, it marked the "three-year anniversary" of Tesla's inclusion in the S&P 500 index. When discussing this topic, both Tesla and Wood Sister believed that the timing of Tesla's inclusion in the S&P 500 index was not ideal, causing index investors to miss out on the period of Tesla's skyrocketing stock price, which was "somewhat strange".

Tesla also expressed that passive investment tools like index funds have become too large, amplifying the fluctuations in stock prices. The growth of index investing is not something that can be managed or fixed, but investors should realize that today's stock market is different from the past when it was primarily driven by actively managed assets. Tesla added:

"Ultimately, someone actually has to make active decisions. Passive investors rely on the decisions of active investors."

On December 18th, 2020, Tesla's stock price closed at around $232, and the company subsequently joined the S&P 500 index. The current stock price is around $253, representing a mere 8.8% increase. Prior to being included in the S&P 500 index, Tesla's stock price had once risen nearly 80%.

During the same period, driven by large tech stocks such as Microsoft, Apple, and Nvidia, the S&P 500 index rose by approximately 27%. Within the S&P 500 index, Tesla ranks seventh in terms of weight, and its stock performance is in the lower half of the index's constituents during the same period.

SpaceX May Be Far from an IPO

Although the market generally expects SpaceX to go public through an IPO, Tesla's remarks during the conversation seem to suggest otherwise.

The discussion shifted from the pros and cons of indexing to a discussion of the benefits of being a public or private company. Wood Sister pointed out that the public market may now be overly focused on a company's cash flow. Tesla stated that for capital-intensive companies like Tesla, going public may not bring in more capital compared to staying private. Tesla added:

"I think unless you have an extremely stable and predictable source of revenue, it's not worth going public."

This implies that investors who want to invest in SpaceX may need more patience because although SpaceX has promising technologies like Starlink, its revenue may not be "extremely stable and predictable" enough.

Tesla is confident in its autonomous driving technology

As for Tesla, Cathie Wood and Tesla focused on Tesla's autonomous driving technology. Tesla is confident in its autonomous driving technology and sees it as a huge opportunity for the company.

Regarding regulatory challenges, Tesla remains positive about the attitude of the National Highway Traffic Safety Administration in the United States and believes that once the technology is mature, regulatory issues will not be a problem:

"I believe that from a regulatory perspective, everything will be fine when the technology is ready."

Other

In the early stages of the conversation, Tesla and Cathie Wood discussed a lot about X (formerly known as Twitter), which has been privatized. Although X has been privatized, it is still important for Tesla investors. For example, X's losses could lead to Tesla reducing its stake in Tesla.

However, Cathie Wood's ARK Invest did not sell Tesla stock. On Wednesday, Cathie Wood's two funds bought approximately 111,000 shares of Tesla stock. Cathie Wood has a long-term positive outlook on Tesla, and Tesla is the second largest holding in ARKK, with Coinbase being the largest holding.

Although Tesla's stock price has slightly declined on Friday noon, its year-to-date increase is still impressive at 133.62%.