Elon Musk’s “5-year forecast” could reveal a real problem with investing in Tesla

Entrepreneur. Huckster. Genius. Many words are thrown in trying to describe Elon Musk. But whether you think Tesla’s co-founder, CEO, and product architect is an idiot or a scholar (or both), Elon Musk’s cultural influence is hard to deny.

Just like his presence on social media, with every idiosyncratic tweet (Tesla’s stock price collapsed temporarily in May after Musk said its value was “too high”) and every “free-thinking” move on a podcast (Musk had a pull on one Joint) with Joe Rogan in 2018), which Musk earned more and more admiration from his fans and more and more insults from his critics.

In summary, his admirers see him as an unjustifiably maligned, clumsy, socially relatable genius, and his haters see him as an annoyingly venerated deceiver.

But we’re not here to compare Tesla’s real vehicle value to stiff competition from corporations like VW (which some investment managers say only need to “flip a few switches” before they’re able to produce electric vehicles “a lot.” more efficient, much cheaper and in larger quantities than Tesla ”).

We’re here to talk about whether Tesla stock is a solid investment, relatively speaking (aside from the fact that no single stock or company is – on its own – a solid investment compared to a balanced portfolio).

This is because Elon Musk said in an episode of the New York Times’ Sway podcast released Monday that Tesla’s rating is high but will be worth more in five years.

“I think a critical mass in the market has concluded that Tesla will win, I think. I mean, I’ve already put on record that I think the stock price is a little high, and that was way ahead of current levels, ”said Musk. “But even if you ask me, I think if Tesla will be worth more in five years? I think the answer is yes. ”

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As Business Insider reported yesterday, “Tesla is trading 760% higher than it was 12 months ago.” The stock is also up roughly 400% year-to-date and currently has a market cap of “over $ 380.2 billion more than Ford, GM and Fiat together ”.

Tesla shares have historically been sensitive to Musk’s public comments. In May, his tweet that the stock was “too high” drove the stock price down as much as 12%, reports Business Insider.

Dude … I just lost $ 10,000 on that tweet. Wtf is wrong with you

– Elvis 🇺🇸 (@TradeLikeElvis) May 1, 2020

“Musk also commented on what some dealers found last week to be a less exciting ‘battery day’. Shares fell as much as 9% last Wednesday as Tesla announced that its next-generation battery cell technology will not be as cost-effective as some initially thought, “they continued.

On Monday, the day Musk gave his positive five-year forecast for Tesla: “The electric vehicle manufacturer rose by up to 5% during … trading hours,” Business Insider also reported.

From DMARGE’s point of view, however, even this positive price jump is further evidence that Tesla’s current share price is like a mountain with a ton of snow on it – there may (or may not) be a real rock-hard value underneath, but the upper layers are clearly loose.

James Whelan, Investment Manager at VFS Group in Sydney, told DMARGE earlier this year that “Tesla [is] is approximately 230 times the price / earnings ratio; Tesla’s price is 230 times what it makes per share. “

“That’s crazy.”

“The market as a whole was traded 23/24 times [the price to earnings ratio] it was trading at 17 last week before the pandemic broke out; The average amount the market as a whole trades for is usually 14 or 15. “

“Honestly, I just don’t like being a part of very bubbly stocks because when the carpet is pulled out, it is pulled out really hard.”

Whelan told DMARGE that “smart money would … buy copper or lithium. So you don’t have to choose between Tesla, VW, Porsche or Toyota. ”

“They’re all going to go to electronic vehicles, so I’d just buy lithium; it is used in batteries or copper that is used in [practically] every part of the electric vehicle. Then I don’t care who wins this fight, I know if both win, I’ll win. “

“Even if they both lose, I will probably still win.”

“I don’t want to have to worry about the shady tweets from Elon Musk, I’d rather only own one product that will benefit from an electronic revolution, isn’t that easier?”

Another factor that plays a role is the short press, according to Forbes. This is what happens when investors short sell Tesla just so their bet won’t pay off (and so that they are forced to buy Tesla stock and return it to their broker).

As Forbes reports, “The higher share price is wiping out even more short sellers, which in turn drives the share price even higher. This repeats itself over and over and sends the share price at the banana level. And we call this vicious circle a ‘short squeeze’. “

“The dollar value of all Tesla stock sold short is close to $ 20 billion. No US stock in history has ever been so short. “

Looking ahead, Apple AAPL + 0.3%, the second-most-short-selling stock in America, sold $ 13 billion worth of stocks short. But … the company is 14 times bigger than Tesla. ”

“The sheer size of the short sellers runs the risk of Tesla falling into a short squeeze of historic proportions.”

That would surely make investors reach for a different kind of green …

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