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Tesla's hype machine rolls on

9 Nov 2021 6 month(s) ago

The performance of Tesla's share price is quite a spectacle.

After Bitcoin, Tesla is one of the strangest creatures in the financial firmament. Morgan Stanley notes that Tesla’s market cap (value of the shares) increased in one day by an amount roughly equal to double of Ford's market cap. It is a trillion dollar stock, which is bizarre considering it is still emerging.

It is a very strange phenomenon and seems to involve more than just electric cars:

“Tesla shares have added nearly $100 billion of value (on fully diluted share count) in one day. The Tesla you see today reflects a very differently resourced, pre-COVID Tesla. The Tesla we believe that will emerge over the next 12 to 18 months will reflect a different type of Tesla in terms of its financial strength and ability to bet on itself in an even more ambitious way.”

Morgan Stanley says one boost will come from purchases of car fleets.

We believe the use case of EVs (electric vehicles) is ideal for many dense fleet applications ranging from final mile delivery, logistics and rental duty cycles. We believe Tesla will use ‘learnings’ from their fleet customers to better understand how their vehicles (battery, autonomous systems) perform under high mileage/high utilization duty cycles like car rental. Over time, we would expect to see Tesla vertically integrate its hardware/OS/network capability into captive fleet management applications.”

Morgan Stanley estimates that for every one million units Tesla can sell by 2030 it will get approximately $US50 billion of revenue (auto + services), $10bn of EBITDA (net earnings) and approximately $150 to $200 of value per share.

The broker then notes that the shares are a bit of a punt, comparing speculative investing versus long term positioning.

“Tesla shares have a tendency to be quite volatile and driven by a wide range of market forces that are difficult to comprehend. While we currently believe Tesla shares are worth $1,200 as our base case ($1,600 as our bull case), we don’t have any expectation that the shares will trade up to such a level in the near term.”

Tesla's price-earnings ratio is 396, which signifies that at current levels of profits it will take 396 years to pay back the share price. That means there has to be an awful lot of profit growth to justify the current stock price. Here is the share price performance:


As Zero Hedge comments, hype is everywhere:

“The last thing you care about is what is behind this move (clearly it is not fundamentals). Still, some may ask just what is the driving force in this market that allows a $1 trillion company to trade like a pennystock, and gain over $100 billion in market cap.”

Good question. Zero Hedge attributes it to ‘gamma’, a metric used in options trading: whereby traders try to pick the future price of something.

What is not in doubt is that it is to do with hype and market frenzy, not the boring business of selling cars.  


Reader note: This is general reporting only and should not be considered in any way to be investment or tax advice. It does not take into consideration the investment objectives, financial situation or particular needs of any particular investor. For more information please read our disclosure statement.

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