Sometimes it’s worth taking a step back from day-to-day price and trading concerns over stock valuations and taking a longer view. It’s about time this was done with Tesla in my view.
For a long time now, in fact, right from the start, there’s been a significant divergence as to the real value of the underlying business. Some think Tesla is the harbinger of the new EV revolution. That the very idea of the battery-powered electric vehicle is going to storm the world with Tesla the uncatchable front runner. That’s the bull view, of course, bolstered by that talk of fully autonomous driving, robot taxicabs, and so on.
There’s also long been that bear view that it’s little more than a shadow play kept in being purely by Elon Musk’s reality distortion field – similar to that of Steve Jobs. At some point, the dream will die and the entire structure will crumble to nothing. Without being able to issue more stock at ever-higher prices the market will realise that there’s just nothing there.
There are back and forths on that Tesla stock price, of course, as those views battle it out with each other. There’s also that current little headwind as Elon Musk cashes out some of this stock. This is more a technical issue than anything else. Substantial stock options and grants matured this year, he needs to sell something to pay the tax bill. CNBC actually had one estimate of just the tax bill at $15 billion which is the reason for Musk’s Tesla sales.
OK. But there’s that possible long-term view to have. Which isn’t, to my mind, being properly thought through as yet. Yes, OK, there’s still that glorious bull case that Tesla conquers the world. But that extreme bear case, that there’s nothing there, I think we’re past that.
It’s even possible to believe that the extreme bear case was true at one time but now it isn’t. Tesla has got over that financing peak. They have real factories making real products that are shipping to real customers. In volume too, they’re not a niche vehicle anymore. That soaring – possibly too soaring – share price has enabled them to sell treasury stock to finance the company. The Musk reality distortion field might have been necessary for all those things to happen. But they have happened and that’s what’s different.
Leave aside the Tesla bull story for a moment and consider that disappearance of the extreme bear story. Even if the magic fades, we see the wizard behind the curtain, there is now a real business there. It may or may not be worth the current valuation, that’s a different matter. But Tesla is now a business, in a way that it’s arguably not been before when it was all about the hope of becoming a business.
In this sense, and this sense alone, it’s possible to say that Elon Musk has actually done it, he’s succeeded with Tesla. Tesla is now a real auto manufacturer not just the dream of one. Given the starting point that is winning.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.