An unfair but possibly true statement would be that Tesla (NASDAQ: TSLA) has just been through the mother of all meme bubbles over the past few years. There is a major difference against the others, Gamestop (NYSE: GME), AMC (NYSE: AMC) and so on, most especially Bed, Bath and Beyond (NASDAQ: BBBY). The most obvious possible difference being that Tesla is indeed a world beating car maker, there’s a real beating business at the heart of it. That’s not, perhaps, wholly and exactly true of the others and BBBY has just admitted to serious doubt that it’s even a going concern any more.
But it’s fairly obvious that there was a vast bubble in TSLA. That’s why Elon Musk now has the dubious distinction of being the first person in history to lose $200 billion. OK, so the Tesla stock went up too far, has now come back but what we all want to know is what happens from here? We are, after all, rather interested in being set to take advantage of future price changes, not so worried about past ones.
So, should we be thinking about Tesla as a story whose time has passed? Or is this just a return to some sort of normality – normal valuation methods for the stock – and if it’s normality we should use those normal stock valuation methods? Cathy Wood at Ark certainly thinks so, she’s doubling down on Tesla at the current price.
There’s a lot of talk about how the mainline car companies are loaded with debt which is true but also not really true. Sure, if they are heavily loaded then their switch to EVs becomes very expensive to finance and thus they might not do it very well – that leaves room for Tesla. However, that seeming debt load of the others isn’t quite so. Take out their financing arms for consumer vehicle purchases and they’re all actually rather cash rich. Those consumer purchases are, after all, secured against the vehicles and the consumer incomes that pay off those loans. So, the likes of Stellantis and Ford, VW, do have the cash required. Well, largely so, the point being that there’s no grand hole where financing ability should be.
It’s entirely possible to think that Tesla is simply some years ahead of the rest of the game. Say, in rolling out – non-mutually usable – charging stations. Or in moves toward fully autonomous driving. Or it could be that the brand will keep it ahead of the others.
We could even start with postulates about how the entire EV world went through a bubble. As the gaps in other business plans – Nio, Rivian and of course the archetype, Nikola – became apparent then those relative values of legacy car makers rose against the upstarts. But should we be considering Tesla to be one of those upstarts anymore? Sure, they’re still an order of magnitude behind some of those others in sales – millions, not tens of millions a year – but they’re clearly also not a capital sucking producer of a handful of vehicles a year.
But this is all what we need to be thinking about now. There was that 12% fall in TSLA as the results came out for the year just passed – OK. But at some point, that story of the future becomes believable again. There is, after all, no such thing as a buy at no price – nor a sell at no price. There’s just a price at which it is right to buy, or a price at which it is right to sell. That balance between that future story that is already encapsulated in the current price and that story that isn’t.
The balance of where this all is with Tesla is of course up to us as individuals. We know where the average view is, that’s the current market price. That’s what market prices are, the average view of humanity as evidenced by who is willing to buy at this price, who to sell. The big question then becomes, well, do we agree with everyone else?
It’s possible to argue this either way. Tesla was a bubble company and even after the recent declines is still overvalued. Tesla is already a mass manufacturer and has a lead on the others in the EV space and will recover. That current price is the balance of those who believe those things. What the future price is going to be is partly – and the minor part – how that turns out and partly – the major part – how views about what it’s going to be change.
Well, you know, good luck and all that. But it’s certainly going to be interesting.
