The Church of Tesla.
L. Ron Hubbard once quipped (before he founded the church of Scientology) that ‘if a man wants to make a million dollars, the best way would be to start his own religion.’ Tesla is most definitely not registered as a 501(c), but if it was it might explain some things – or at least make it easier to understand.
What does the market know that the rest of us mere mortals do not – Tesla’s share price continues to shirk the laws of financial gravity on its ascent, dethatched from any generally accepted market metric.
The Model 3 is here, and it is deeply troubled. Volumes are much lower than expected – there are not nearly enough – and those people who paid deposits in 2016 for the Model 3 (also known as unsecured creditors) will never see their car with a US$35k price tag as promised. For the last six years Tesla has owned the luxury electric vehicle (EV) market – the Roadster, the Model S, the Model X – have all enjoyed a market with little competition. That is changing rapidly: the Jaguar I-Pace will almost certainly supplant Tesla; Audi is coming to market; as is Mercedes, Porsche and a host of other serious players.
Part of the narrative underpinning the company’s valuation is that investors have put their money to work in a technology company – not a car company. The bull case is seemingly not one of applying a reasonable and comparable multiple to a future profitable motor vehicle producer – but rather a Silicon Valley start-up that deserves a P/E ratio of 100+, vindicated through an investment by Tencent, and posturing for the inescapable future acquisition by Softbank or Apple or Google.
But it’s a long-shot. Tesla is a niche player: a speck on the map in terms of energy storage and far behind many others in autonomous driving (a technology that in of itself is many years away). As Tesla continues to scale losses with revenue, flambé cash at the rate of $2.0bn a year, and underdeliver on product, only the truest of true Elon faithful will be able to keep their nerve.
Unfortunately for the rest of us, it is also a very crowded and dangerous short. Time is the most reliable solvent of financial lunacy, but Elon Musk is yet to plumb the full depths of his charm and charisma over the market I think.
