Tesla Inc (NASDAQ: TSLA) has long been a stock working more on hopes of what might happen – OK, will happen – than it has been about the objective valuation of specific results. This is OK, all acts of entrepreneurship, and whatever else Elon Musk is he’s an entrepreneur, are about levitating the dream for long enough to be able to make it a reality.
At which point well, we seem to have those dreams being reality. Tesla is now a real car company with significant deliveries in many markets. Why is the stock price dropping as Tesla achieves those goals?
It’s possible to look for and find technical reasons why the stock price is wilting. Elon Musk has been selling part of his Tesla options grants so as to pay the tax bill on the rest of them. The end-of-year trading update giving total deliveries was impressive but maybe we don’t want to take news of Tesla deliveries all that seriously. It’s entirely possible to think that Tesla’s 55% stock price rise in 2021 was something that was going to reverse at some point. Or even that Tesla’s recall of near half a million vehicles doesn’t bode well for quality control issues. One of the bear cases for Tesla always has been that mass manufacturing is really, really hard and it’s even worse trying to scale up to it while maintaining build quality.
But there is still that bull case to be made. The world is indeed going electric vehicle. Tesla is building out factories and ramping up production. The quality – the distance achieved per charge perhaps – of the batteries seems better than many others. And there’s always the point that battery manufacture at scale does bring that positive feedback of lower production costs, enabling higher sales at lower prices and so on again.
We’ve also the news that Tesla’s sales aren’t just all to Californian weirdos. Of course, this wasn’t a sufficient base to build an entire mass manufacturer upon so the news that Teslas are penetrating into very different markets is a positive. For example, we’ve just had the UK sales figures for 2021 which show Tesla as the second-largest supplier to the entire market. Or rather Tesla’s Model 3 was the second best-selling model for the year.
Why wouldn’t all of this be a bull case? Which is what the Tesla conundrum is. It’s just as all of this proof that Tesla really has become a mass manufacturer of in-demand cars that the stock price starts to show weakness. It really might just be that hope ran ahead of achievable reality – or as that stock market adage goes, buy the rumour, sell the fact.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.