It's a lengthy article but I didn't learn anything other than the author likes the word "bubble".<p>The article claims that Tesla valuation is not based on fundamentals but it fails to present any fundamental model.<p>Here's one model that justifies price target of $600 (i.e. much higher than current $480 price): <a href="https://twitter.com/garyblack00/status/1300540006864486404" rel="nofollow">https://twitter.com/garyblack00/status/1300540006864486404</a><p>Now, you might disagree with Gary Black's numbers and think that they are too optimistic but at least there are numbers to disagree with.<p>This article, sadly, lacks any quantitative or qualitative analysis to disagree with. You should probably disregard people who's only argument is shouting "bubble" and comparing anything to bitcoin.<p>For the past 10 years Tesla has been growing revenue at 50% Compounded Annual Growth Rate.<p>If they keep growing at 30-50% for the next 5 to 10 years, they'll grow into a valuation that might seem excessive today. That's a very simple and yet more often than not unappreciated math behind compounded growth. Einstein understood it. Warren Buffet understands it. The author of this article doesn't.
Tesla may be in a bubble, but this article doesn't provide a compelling argument. See Rob Arnott's analysis on Tesla for a more robust bubble argument that's based on the financials.<p>Comparing Tesla to Bitcoin is flawed. Tesla is a publicly traded stock that produces products and is subject to financial audits. Bitcoin is completely different and can't be valued like a traditional financial asset. See Robert Shiller's discussion.<p>Tesla will need to make a lot of profit in the future to justify a $442 billion dollar market cap. They'll need to go from breakeven to making around $66 billion a year (for a P/E ratio of 15).<p>Jeremy Siegel wrote a great article in 2000 about how tech companies would need to make massive profits to justify their bubble valuations. It's still a great read.
Too much attitude, not enough substance in this piece. It does little to actually fulfill the promise of the title in a way that hasn't been done hundreds of times already.<p>Number go up, so people buy. Number will go down. Don't enter a burning building. Don't try to catch a falling knife.<p>Yes, we all know that.<p>Assets go through periods of being overvalued all the time. There's a big difference between that and a bubble.<p>Nor does the author even mention the main difference between Tesla and Bitcoin. Tesla is a company and there are tested traditions of valuation that generally hold over time such as price to earnings ratio.<p>Bitcoin has no earnings. It's more like a currency or gold. Therefore, valuation is more challenging, but still possible given some work. Had that work been done, some actionable conclusions might be drawn.
People were calling a Tesla a bubble ever since it was trading at $8/share in 2013. "Who is gonna spend $50k onan electric car?" "Tesla is dependent on subsidies and burning cash!" "GM, Ford, and Nissan have competitors such as the Leaf" etc. These predictions are meaningless, according to exhaustive empirical analysis. They said the same about Facebook in 2013 when it was trading at $33/share. "Buying Instagram for $1 billion was so stupid" "Mobile ads will never work!" "There will be a competitor!" "Just a fad!" etc. They said same about Amazon when it was at $400/share in 2014. "Losing too much money on Prime orders!" "Fake reviews" "Share price too high, not enough profit!" "Stealing from the state (in regard to taxes)" etc. The list goes on and on. For every correct prediction, they get many wrong. If if valuations are high, what these people ignore is that earnings are surging, so that high PE ratio will come falling really fast. For example, Facebook had a PE ratio of 100 in 2012. If I were going to try to predict which companies are most vulnerable to being bubbles, I would look for companies that are not a dominant as Amazon or Tesla, but are small and whose products can be easily substituted for cheaper alternatives. Retail is especially vulnerable to this. But then again, Nike bucked this trend. Bitcoin , unlike Tesla, cannot generate shareholder equity, so in the long-run Bitcoin will always lag equities, as commodities have always done. Bitcoin's price is just a function of supply and demand and has no intrinsic worth. Still long tesla and amazon. Ppl need to stop trying to call the tops of these things. Ain't gonna happen. Loser's game.
One thing to remember, Elon will not stop promising impossible things. Why people still believe that [Mexico will pay for the wall] is beyond me.<p><a href="http://elonmusk.today/" rel="nofollow">http://elonmusk.today/</a>
While I agree with the bubble label, I think the reasoning described in the article is wrong. Since the bond yield inverted earlier this year, investors are looking at anywhere to put their cash for an ROI. And to further fuel the situation, the QE policy of the US treasury (I.e. printing money) has resulted in more cash sloshing around with nowhere to go other than the stock market. These factors are fueling the rise seen in the share market much more than simply “speculative investor sentiment”. Like all bubbles, this one will inevitably deflate (hopefully not pop). I do think that these factors have multiplied which in turn has attracted even more investment. I believe that now is a very dangerous time to invest in the share market. A lot of this is speculation. With any luck we can navigate this situation without a crash, though I remain highly skeptical.
Another argument for justifying the run up in price is that investors see the promise of TSLA being more than just a car company. The future of the Solar City division means that part of the company can be viewed almost as a utility co. There is a data play too. With an ever growing volume of Teslas on the road, all stocked up with the very latest in sensor technology, the company collects tons of valuable data not just for maps but also for Real time road conditions and traffic. At some point, they may find lucrative ways of monetizing that. Then we look at just the trends for their core product, the cars. The crazy thing that Tesla is doing is turning all other luxury cars into Cadillacs (ie products for old people). They are doing the same thing to Mercedes and BMW that the Apple Watch did to Rolex. If you want to signal that you are part of the new rich, you buy a car that shows off power + environmental friendliness. With the flight out of major cities in the US, Tesla is going to be a pretty popular choice for new car buyers that just landed in the suburbs.
Not sure this article was more than a journal entry for the guy who wrote it, but I will chime in.<p>Given any anecdote about the economy going down and stock market going up, it is worth noting what is going on with the money supply. There is a huge amount of liquidity being pushed into the USD supply by the fed and treasury. It needs to go somewhere. The (government's) hope is that it will go into hiring/spending and the real economy. Even if that is what happens to the majority of the new money supply (debatable) a large amount will go into financial assets for people who want to preserve their wealth. The expected result (IMO) would be stocks to go up in USD purely because of demand for them. This can alse been seen as inflation or maybe financial asset inflation. The fundamentals of the economy are not good, but the new money has to go somewhere. After paying for living expenses etc, there aren't many places to put it besides the stock market.<p>A final thought is that if consumer price inflation remains low and financial assets catch all the inflation, the "rich" or invested benefit the most. However, its arguable that financial asset inflation without CPI is a better result for most people vs high CPI and a stock market crash. I would be interested to know if this a framework used by the Fed or just me as a random guy on the internet.
Remember, Tesla is more than a car company. They are an energy company and are actively growing their battery manufacturing capability.<p>Why is that important to remember? With initiatives in the US like the Green New Deal and other various green energy pushes; <i>there will be a huge demand for grid-connected batteries.</i> Edit: They (Tesla) has a massively profitable grid-connected battery in Australia that's paired with wind generation.<p>IMO, Tesla's high price is a <i>gamble</i> that American politics will create a large demand for batteries. But, I wouldn't call it a bubble.
Quoting the recent [1] on Tesla's performance on Monday:<p>> <i>Today alone, Tesla’s market cap soared by $64 billion in eight hours, including after hours. That’s $8 billion in “value created” per hour.</i><p>><i>In the second quarter, Tesla’s total revenues were $6 billion, down by 5.8% from Q2 last year. Today, its value rose by $8 billion per hour. Over the past four quarters, Tesla’s total revenues were $26 billion. Today, its value rose by $64 billion.</i><p>And the same source on the stock split:<p>> <i>The stock split did the job, based on the logic that a five-dollar bill broken into five ones makes each of those ones suddenly worth $1.16 — or $1.87 if you start counting since the announcement of the split on August 11.</i><p>And I think this really puts things into perspective:<p>> <i>Tesla’s shares are now valued at about 20 times annual revenues. [...] In terms of market cap, this makes Tesla the seventh most valuable US company – not counting Alibaba.</i><p>A car company that sold just 400K cars in its best year is the <i>seventh most valuable US company</i>. Unbelievable.
The last part made the most sense about "the ship has sailed" in terms of "buy low sell high" but there's so many sectors to dominate that Tesla is still going for and has a distinct approach/advantage for domination. Where's "high"? idk
The fossil fuel economy has enjoyed a psychological bubble: we can trash the atmosphere with whatever we want. Tesla was the ONLY automaker to look at the SCIENCE DENYING bubble and say: maybe we actually need to emit less GHG or our planet is doomed.<p>Everyone thought they were crazy, that it was a waste of money to emit less garbage into the air, and NO ONE stepped in to compete on EVs. Meanwhile, Tesla were simply following the science, which said we NEED EV's. As the science has progressed, many governments in Europe and some US states have massively pushed toward EV, and early adopters who are also looking at science and the performance of EVs say: I'm rich, Tesla works for me now.<p>Does Tesla have too high of a valuation? Maybe, but their EV's are years ahead of the competition, so maybe not. Maybe the fault here is with other automakers for completely ignoring EV's for the first decade of Tesla's domination.
Interesting choice on one of those charts to truncate the "post-crash Bitcoin" price at end 2018. The price recovered to $10k by mid-2019 and has been relatively stable there since.
I saw him mention how the stock market "fully recovered" but I didn't see the word "trillion" "inflation" or "stimulus" anywhere in the article.
<i>For $7,625 invested at the opening offer price, you’d have a million dollars today.</i><p>This statement from the article is incorrect and doesn't account for the stock split. Had you invested that much at the opening price you'd actually have closer to $5mil today.
One of these things is not like the other.<p>One is backed by multiple factories producing vehicles, with even more factories coming online in the next year, an entire industry facing "innovator's dilemma" with a petrol & diesels new sales ban coming into force 2030-2035 for most countries.<p>The other, a virtual commodity not backed by any physical items, issuers or a real economy.<p>How are they comparable?
I think there's a crucial difference between TSLA, bitcoin and other "pure" bubbles. I would include The Dotcom in the pure bubble category... definitions are soft therefore debatable. This is IMO.<p><i>"Stocks </i>(in a bubble) <i>can become inflated through mania-fueled narratives - not fundamentals."</i><p>I disagree on nuance. Narrative often drops off during a pure bubble. Rising prices fuel mania and further rising stock prices. This is a key element of bubbles: feedback. We have a debate about TSLA in 2019. You say it's overpriced. I buy TSLA. I make money. We argue again. It's hard for you to win the argument now.<p>Bubble narrative tends to get vague as time goes on. Bitcoin's narrative was that it would be a real currency. People would get bitcoin salaries and buy groceries with it. That isn't the narrative anymore.<p>The dotcom narrative, towards the end, became a vague "<i>this is just how the economy works now</i>." The mania was there. The stock prices were there. The narrative itself fell off. Uber is another good example. What's the narrative now?<p>Tesla has some differences. A "narrative" <i>is</i> actually driving stock prices. Tesla investors are betting on certain things being achieved. They may or may not be achieved, and that will determine whether or not it was a good investment.<p>Narrative 1 is (at current prices), break-even or less for investors: Tesla will keep its position in the EV market, but the EV market will grow massively.<p>Narrative 2 is: Self driving is coming soon. Tesla is in position and others are not.<p>The first half of the narrative is suspect. "Soon" can be a long time. The second half is (IMO), pretty solid. It takes time to make new models of cars. This is the other extreme to software. If all factories switched in one day, it still takes a decade to replace the full fleet. Meanwhile, factories long lead times. Etc.<p>If the software works and they get a regulatory green light, Tesla immediately controls an existing fleet and all their new cars are immediately self driving. It's a very big lead in a very, very saucy new market.<p>Now... You can think that's likely or unlikely. But, A Tesla share is really a bet on this narrative/prediction becoming reality. A bitcoin is no longer a bet on any prediction besides future prices.<p><i>"Sometimes, performance becomes completely untethered to any analyzable fundamentals."</i><p>This is true, but I think it mistakes what these "fundamentals" mean. It's like using BMI to determine if someone is fat. True, on average. Average is good enough for a stock analyst or an insurance actuary concerned with portfolios and populations. For any individual though, the "mirror test" is more accurate than BMI. The fundamentals of any day 1 startup always say "don't buy."<p>A more fundamental fundamental is (value)=([p]narrative 1)X([$}narrative 1) + ([p]narrative2)X([$}narrative2)<p>Insert your own probabilities(p) and values and you have your guess at Tesla's "real" value.<p>Whatever you think of current prices, you have to be extremely bearish to come up with a value that reflect TSLA's current "fundamentals".