Don’t look now (nevermind feel free to look, it’s not my money), but Tesla’s stock is currently trading at around $545 a share, or nearly triple what it was trading at its lowest in June. This is mostly because its China factory is up and running and it had a profitable third-quarter. But, you know, we’ve seen this movie before.
Back in June 2017 Tesla’s stock was up to $383, its heretofore highest amount. A month before, as stock was climbing up, CEO Elon Musk said he had no idea why the company was valued so high in an interview with The Guardian.
“I do believe this market cap is higher than we have any right to deserve,” he said, pointing out his company produces just 1% of GM’s total output.
“We’re a money-losing company,” Musk added. “This is not some situation where, for example, we are just greedy capitalists who decided to skimp on safety in order to have more profits and dividends and that kind of thing. It’s just a question of how much money we lose. And how do we survive? How do we not die and have everyone lose their jobs?”
Back then, the main reason for the stock surge was the introduction of the Model 3, which began production that summer and was supposed to be Tesla’s mass-market path to sustained profitability. And it’s true that the Model 3 has largely been a success, with Tesla delivering 300,600 Model 3s in 2019 and over 92,000 Model 3s in the fourth-quarter 2019 alone. Those are global sales numbers, but consider that the Model 3 number in the fourth-quarter is almost double the number of 3 Series BMW sold in all of 2019 in North America, Tesla’s biggest market. You can see the argument that Tesla is on the up-and-up, especially if production and sales in China heavily ramp up this year.
And yet, Tesla’s stock was trading at $185 a share as late as this past May, less than half of that June 2017 high, even in the midst of surging Model 3 sales, making its current stock gains feel pretty optimistic, since what has really changed between now and seven months past? Tesla’s current stock price also has it approaching $100 billion in market capitalization, which could trigger a massive payment for Musk and is bigger than Ford and GM combined.
What do these numbers mean, exactly, for anyone who isn’t a Tesla shareholder, a Tesla short, or Musk himself? They mean that a bunch of investors have opted to place bets that Tesla will be successful long-term, but that is all the stock price means. Tesla’s valuation is huge for now, but it could be smaller tomorrow or even in the very next few minutes if enough investors decide that Tesla won’t be successful in the long-term and sell their Tesla stock.
To be sure, there is trouble on the horizon. Model S and X sales are basically stagnant, even if they are still very profitable vehicles for the company. The whole fully self-driving car thing still has no real timetable, and Autopilot’s current iteration is dangerous in some contexts. And China’s car market is currently in its first downturn in three decades, meaning that Tesla’s giant bet there is far from a sure thing. And then there is the Musk himself, always a wild card, imprisoned to his own self-destructive compulsions.
We haven’t even talked about new products like the Model Y, the semi or the Cybertruck, or the Roadster, none of which have reached customers yet, and some of which are very far from ever reaching customers. In any case, this company has been walking a tightrope for years, always just on the edge of survival. It’s currently riding pretty high on the stock market but no one could honestly argue that its long-term sustainability is assured, and for different reasons than legacy automakers, whose long-term sustainability is often only threatened by their own myopia.
Tesla has something like the opposite of myopia, with Musk constantly trying to out-think the future. The jury’s still out on whether that’s also good business.