If Tesla is only profitable because of carbon credits should it be in the S&P 500?

Investing is a tricky game, and most people prefer to leave their investing to experts. But the loss of trust in stock brokers has led to the increase in the use of Stock Investmemt Funds which invest in groups of highly rated stocks almost mechanically and almost automatically. Gone are the times where stock funds were run by maverick stock gurus, they have been replaced by algorithms. This is why Cathy Woods ARK Funds stand out, she is a throwback to when diversity in thinking was the norm.

What does that have to do with Tesla?

Well for starters, it makes us wonder what’s so great about Tesla being finally promoted to a member of the famed S&P 500?

Mainly that many alcorhythmically run passive investment funds will have to buy Tesla Stock in exact proportion to its proportion of the S&P Index. So they would buy roughly 35 billion dollars worth of Tesla. This means these passive stock investment funds, investing the retirement savings of millions of people would use those peoples hard earned money to buy Tesla stock.

Is this a bad thing? Everyone loves Elon Musk and thinks he is a genius..right?
He is popular, but not everyone thinks he is a genius businessman.

Tesla does make a net profit on its cars right?

Nope, read their K-9 filings for each of the last 5 quarters, it’s been all over the news because to be excepted into the S&P 500 you need to be profitable for five quarters, that’s one year and for the entire 5th quarter that your companies adoption into the S&P 500 is being contemplated.

The fascinating thing about Tesla’s filings are that it lost money on its cars every quarter, varying from 400 million to 100 million, but it’s other items it sold, mainly Carbon Credits and Bitcoin, made it profitable every quarter.

Carbon Credits

Yes those are certificates literally given to Tesla by its government for building cars which produce very little green house gases like carbon dioxide. So Tesla sells those carbon credits to companies who make cars with a large output of green house gases, so those companies can continue making such cars. Almost the exact opposite of what carbon credits were invented for….

So now Tesla gets to join the S&P 500

The S&P 500 is suppose to represent the largest and consistently profitable companies, and it’s safe to invest your retirement income in them because they are good investments.

But Tesla has been using carbon credits to be profitable, so in reality it’s a company with five losing quarters, which people shouldn’t be investing their retirement nest eggs in. But Elon Musk is playing the games so well that here we are…

Tesla is a fantastic technology company

But profitability is the key to survival of a company, not fancy balance sheet math. Technology companies usher in innovation and amazing products, but that doesn’t mean they survive long term. You have to make a profit to do that, and so far Tesla hasn’t done that….

Plus now the mechanical buying of its stock will take place, pushing its valuations even higher…

Until the carbon credits run out or sell for to little to keep the bottom line on the balance sheet black. Once the bottom line is red what happens then? Does the bubble burst? Does Tesla come crashing down? Or will this carbon credit profit last long enough for Tesla to start making a profit off its cars or batteries or AI system which drives its semi-autonomous vehicles?

Wonderful technology, carbon credit positive balance sheets. We will know in the next few years.

The End for now.