Sorry, I Called the Bubble Burst on Tesla Too Quickly!

I wrote a while back about the Tesla bubble bursting – well, I was a bit too quick to post that and its share price is now back above $420 per share, 20% up after dipping in September. Tesla is now worth more than the entire southern hemisphere’s economies combined!*

Sorry guys, but it goes to show you the value of not picking your own shares, because you can get it wrong. But with Tesla, you are investing in a momentum share – and in these times, conventional things like P/E ratio (>1000) don’t matter and if the price was only $50 a share a year ago it just goes to show how it’ll be worth £4,000 a share by this time next year.

In some ways Tesla’s share price is the bellwether of the Covid times. The DotCom bubble was all about brand new companies getting magical valuations and many of them going bust. The story about Pets.com is worth reading but 20 years later, the dotcoms of this world seem too big to fail. Facebook, Apple, Netflix, Google – these have all gone from strength to strength whilst other companies have struggled like ExxonMobil which was replaced by Salesforce in the Dow Jones 30 last month. As Dylan sang “the times they are a changin'”.

But the FAANGs are pretty well established with their dominance well known, customer base secure and future revenues looking safe. The same can not be said however for Tesla. One major reason for this is that their main business is making cars and car makers have had a tough time of it. Also, the revolutionary technology that they have now does not guarantee them infinite future dominance. There are lots of other car makers out there, many are making electric cars too (and Tesla didn’t invent the electric car) and the competition is tough. If Tesla cars have a massive profit margin (just like Apple products) then scaling up and selling millions could be a great business and justifies the current valuation BUT it’s one thing to pay a few hundred quid more for an iPhone than Android but it’s another to spend a tens of thousands of pounds extra for a Tesla over a VW or BMW.

Tesla’s cars are nice, but I’m on record saying that I’ll probably not get an electric car anytime soon. But they are a step towards a greener future.

Investor Sentiment

I’ve said here that Tesla make cars but for all I know this might be a small part in an otherwise large company that is revolutionising whole industries. Let’s see, there’s SpaceX which might be Tesla and the Boring Company, that’s probably Tesla too – it’s certainly Elon Musk and he’s Mr. Tesla.

]which bores tunnels and maybe a Mazecar tube that will allow us all to live like Logan’s Run.** The point is that I think that the wild swings in share price have little to do with how the business is actually valued or how the future looks but more on how speculators in the market feel about such things.

There’s a good chance that Tesla will be a company that makes solid profits far into the future and if so, it’s probably a good investment. But at over $450 a share you’ll make a lot less than someone who paid less than half that a few months before now.

I’m still calling bubble on Tesla. But I’m not an expert. It’s your money to lose if you want to jump on the Elon Musk bandwagon. It has seen a lot of people get very rich but I’m not among them.

Thanks, GFF

P.S. I don’t hold & haven’t held shares in Tesla or any other company mentioned.

*I made that up but who knows, it might be sort of right, like Tesla is worth more than all of Subsaharan Africa’s GDP or all of the the countries which have never won an Olympic gold medal.

**From my half-assed research, SpaceX and the Boring Company are not part of Tesla but they all go to fan the flames of fame for Elon Musk.

2 comments

  1. I’m baffled that the likes of BMW and Mercedes can survive: the cars they make are nowhere near as reliable as Korean and Japanese brands. They also lack headroom – though, to be fair, so do Prius cars. Maybe the “status” brands are built to appeal to short men?

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s