As just one illustration of what’s taking place in this market, Tesla stock gained over $115 billion today (yes, billion with a “B”) on the news that Hertz has placed an order for 100,000 vehicles over the next 14 months totaling about $4 billion in revenue. That’s almost 30x the one-time sale! Not earnings but SALES!
Put another way, Tesla added two entire Ford Motor Company’s in a single day (based on $60+ billion market cap)! Ford sells over 4 million vehicles worldwide each year and, yet, Tesla stock increased by two Ford Motor Company’s (equivalent to 8 million cars annually) in a single day on the news of a 100,000 one-time fleet sale over 14 months.
Christopher Bloomstran points out, “As of today, $TSLA is valued above the entire global auto industry, PLUS Uber, Lyft, Progressive, GEICO (if public), Allstate, Duke Energy & Dominion Energy.”
To put that in perspective, understand that there are about 74 – 78 million cars sold globally and Tesla sells about 1 million of those yet Tesla is valued more than the rest of the entire global auto industry combined.
Warren Buffett’s Berkshire Hathaway has net income of over $105 billion while Tesla’s revenue (NOT net income but total revenue) is less than half that at about $42 billion. Meanwhile, Tesla stock is now worth about 1.5x Berkshire’s.
Apple’s net income for the trailing twelve months was over $86 billion dollars. Tesla’s income was barely over $2 billion (or about 1/43rd) and, yet, Tesla stock is valued at little less than half of Apple stock.
No doubt Tesla has potential for higher growth and should command a premium but to say Tesla stock is disconnected from the fundamentals is such a laughable understatement.
Essentially, a couple years ago Tesla was one month away from bankruptcy by Elon’s own admission. Then they raised approximately $3 billion on the back of their Autonomy Day when Elon stated Tesla would have 1 million fully autonomous robotaxis on the road by the end of 2020. Here we are at the end of 2021 and fully autonomous robotaxis are still many years off. Elon’s own aggressive estimate of the value of Tesla was $500 billion yet here we are at over $1 trillion.
EVs are incredible machines that provide a driving experience that toggles between extremely pleasant and exhilarating. Elon has overcome a lot of difficult situations to get to this point and has persevered accelerating the adoption by both consumers and automakers alike. Sidenote: I’m under no impression that EVs are “green,” but they are fun, convenient and easy for many drivers.
My issue is with the speculative fervor of this mania we’re in, and the gamblers who don’t see this market for what it really is who are convincing themselves they are great investors. The problem with manias like this is they suck people in who can’t afford to lose the money they’re gambling with, cause people to ignore risk and fundamentals, cause people to lose their discipline, and these manias have always ended badly in the past.
“A rising tide lifts all boats.” And, as Warren Buffett has said, you see who’s swimming naked when the tide goes out.
The market, broadly speaking, simply has become unhinged from fundamentals. Just one of many reliable examples of this is price-to-sales for the broad U.S. market (as measured by the S&P 500) now trading at over 3x sales easily exceeding the Dot-Com Bubble peak that didn’t even reach 2.5x sales.
So why point this out? The purpose is to serve as a sober reminder for my readers and whomever they share these commentaries with to not get caught up in the mania. Understand what you’re actually buying, why you’re buying it and the risks associated with buying an asset at a particular price so removed from underlying earnings and cash flows.
The goal is to educate…to provide a rational way of analyzing the historic events that are unfolding.
Investors buy an asset because they understand the value provided by the long-term stream of cash flows. Speculators buy an asset with the hope they can flip it to a higher bidder / greater fool.
Obviously, the idea is to only speculate with money you can afford to lose. The portfolios I manage are earmarked for clients’ retirements and other important financial goals (kids’ education, family legacy, charitable causes, etc…). The money I manage has been saved by clients over their lifetimes in order to preserve their lifestyle throughout their lives. So, no, we’re not taking these funds to the casino and will continue to manage risk prudently throughout the market cycle picking our moments to get very aggressive but not when the most reliable indicators indicate the most overvalued market since at least 1900.
Disclosures:
Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.
Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here.
This is not investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.
Views provided here are current only as of the moment of posting and are subject to change at any time without notification.
