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July 23, 2020 - 7:00am
Another day, another downbeat article about the electric car company, Tesla. This one is in The Telegraph entitled ‘Is Tesla’s green investment bubble about to burst?’
A year ago, the headlines were about the company on the verge of running out of money (supposedly). Now, the issue is that, after three consecutive quarters of profit, investors have been pushing up the share price from”$185 last May” to “new highs of $1,643 this week.”
Too good to be true? Well, that’s the tone of the piece:
As the authors point out, Tesla is a “green company, but also a manufacturing company and a technology company” — and thus at the intersection of three important investment markets. So, is its market valuation just a function of being ideally placed to soak up the world’s excess capital?
To some extent, perhaps. But, if so, the real problem here isn’t Tesla, but that there aren’t more Teslas — i.e. companies that gobble up spare cash at one end and produce innovation at the other.
If there were, then there’d be enough productive investments for the world’s savings to go into. Interest rates would turn properly positive again, there’d be an end to funny-money schemes like QE and the return of enthusiasm for the future. Instead, we’ve had a decade or more of cheap credit pumped into property speculation, share buybacks and other forms of financial engineering.
These are the bubbles we really need to worry about — not investor enthusiasm for green technology, which is one of the few sectors in which we see actual engineering changing the world for the better. With enough choices, the market will correct any over-enthusiasm for particular stocks.
But is The Telegraph piece right to say that Tesla faces growing competition as other manufacturers enter the market for electric vehicles? Yes it is, but that is how capitalism is meant to work!
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SubscribeThough it is hard not to admire Elon in some respects, Tesla exists because of government intervention at both ends of the industrial operation. A) tax incentives and direct government investment support in the creation of the company and its manufacturing infrastructure and B) tax incentives and direct support of the purchaser of the vehicle at the sales end of the process. It allows me, as a taxpayer, to help cover about one third of the cost of a $85,000-$120,000 vehicle, that is out of my reach but available to the wealthy buyer who has bought into the “new-think” narrative. The stock price of Tesla is substantially driven by huge hedge-fund money that is not even from the US, but is directly connected to the global banking structures (read: central banks). Tesla has noting to do with capitalism and everything to do with government contrivance.
Agreed. Also, is Tesla really as innovative as it seems? In engineering terms building large, heavy and expensive electric vehicles isn’t that hard; surely the real challenge lies in building small, lightweight vehicles with price performance, range and chargability that compares with fossil-fuelled alternatives.
Precisely – electronic vehicles in an open market setting, would not exist. They are not an efficient means of transportation given open market alternatives.
Good article, any investment is better than property bubbles contrived by central government for the benefit of the landlords and second home owners. Let’s have more entrepreneurs like Musk who can drive massive shifts in technology and expectation.
But that would require a transformed education system and an end to financialization, money-printing and most welfare. Not going to happen.
Might I suggest that the author engage in some rudimentary corporate financial analysis?
Had he done so before writing, he would have seen what the Telegraph’s analysis is correct.
It is plainly obvious that Tesla’s “profitability” amounts to deviously clever accounting, involving counting e.g. tax offsets and subsidies as income.
The bottom line is that Tesla sales -and thus its real income- have stagnated across its markets, and that therefore its current valuation is completely divorced from reality. A bubble waiting to burst.
To have more Teslas we would need to have more Elon Musks: daring geniuses who were willing to defy the stifling social norms that hold back progress. While so many are more obsessed with “good manners” and other forms of political correctness than with “good work”, the likes of Musk will be few and far between.
I think that you might find that Musk’s net worth is substantially supported by the crony subsidies that his businesses receive from governments for investment in “clean” energy cars and generation. Without them there would never have been Tesla or his solar interests. He was once a pure capitalist entrepreneur who made his money investing in PayPal and so on. He has since become a crony capitalist, the sort that gives capitalism a bad name.