Is buying Tesla (car or stock) a rational act?

Is buying Tesla a rational act?

Tesla is a very strange company. Its P/E ratio is 146 meaning it is still a darling in the market. This puts it in the greater fool territory. It would take a 146 years for a buyer of the stock to regain the amount purchased. I doubt if there is anyone optimistic enough to think that they will be around 146 years from now. Rather the investor knows that the only way to recoup the investment will be through capital gains meaning that there is a greater fool out there willing to pay even more for the stock. I know that Tesla is depicted as not being valued as a car company. Rather it is depicted as being valued as a high tech firm. Well don’t you think that most high tech firms are also in the greater fool territory too?

Tesla’s market cap is an astounding $871 billion making it the twelfth “most valued” company in the world. Veteran automobile companies have a much smaller market cap. Ford has a market cap of only $36 billion while GM has a market cap of $49 billion. Mind you Tesla makes about 1.5 million vehicles a year. Ford makes 4.5 million and GM makes over 6 million. So obviously Tesla is not being evaluated as a car company.

But the sharp knives are coming out for Tesla. Is this because of Elon Musk? It is rapidly losing sales in Europe. It has encountered stiff competition in China. Here in the states, several high profile personalities have made a big show out of getting rid of their Teslas. However, I think Tesla’s main troubles will arise from it not being very good at making cars. Its frequency of repair record is the worse among all vehicles, Yet its owners remain fiercely loyal. That is why I said that they are a cult. If any other manufacturer had that distinction, it would lose sales in droves. Motor Trend just reported that the national highway statistics reveal that Tesla is now the deadliest car in America. How will that affect its followers? Elon Musk is a lot smarter than I am but I think he ought to spin off his car company from the rest of his enterprise and sell it to a company that is good at making cars. I know that people will be saying that Ford or GM or any other car company is too small to by Tesla but that ignores what the car only company would be valued.

Tesla has been losing market value as its car sales have fallen. Registrations in Europe have fallen a staggering 45 percent January year to date. Tesla stock is off 25 percent and Musk has found his personal wealth falling $100 billion. Ho hum. Although it is possible that Musk’s prominent role in the Trump administration and his meddling in German politics are reasons for the decline the greater fool hypothesis also makes sense. Stockholders may be cashing in capital gains because the stock is still up 52 percent from last year. 

Selling Tesla will still leave Musk with Space X, the media platform X, an artificial intelligence company and Neuralink. Musk could still pioneer automobile technology such as self-driving and its robo-taxi service. There is no reason to own a car company just to bring that technology to the market. Rather Musk could sell that technology to the automobile industry. No longer will he have to deal with what seems like a daily recall to fix fit of finish, power steering, rear view cameras, tire pressure monitoring systems, power trains, hood latches, windshield wipers, seat belt warning, accelerator pedal malfunctions, autosteer, dashboard font system, faulty door latches and other stuff. Fierce customer loyalty in the face of all this? Did I say cult? Seriously, wouldn’t Musk be better served if he sold Tesla and concentrated on being a technology company? BTW, there is no way I would want to hitch a ride on Space X.