By Alec Hogg
After experiencing the bursting of some serious asset price bubbles – JSE 1987; Nasdaq 2000; Commodities 2008; etc – I’m getting a familiar feeling about the share price of Elon Musk’s Tesla Motors. At the current share price the company is valued about the same as GM, which produces 100 times more cars (and makes annual profits of $10bn against Tesla’s $2bn losses).
Bubbles share many similarities: Punters reject rational arguments, convinced that “this time it’s different”. And despite all the evidence, refuse to believe the music will ever stop. But like the now chastened Bitcoin fans, devotees of South African-born, US-based Musk are being sorely tested. In July last year, Musk promised to that by December Tesla would be producing 20 000 Model 3 vehicles a month. The company didn’t even reach 10% of the target.
Adding to the woes was last month’s death of Tesla’s owner when autopilot software malfunctioned; a class action law suit around its SolarCity acquisition; and the recall of 123 000 vehicles because of a compromised bolt. As a result, even Elon’s staunchest supporters are having pause.
Tesla is cash strapped and with its hefty losses needs investors to continuously pumping in money to keep it going. Wall Street is betting Musk’s financial supporters will soon lose patience. There are more short positions in Tesla than any other stock on the US market. In the past, when his back was against the wall, Musk managed to pull rabbits out of the hat. Given these challenges, he now needs an entire warren of them.
