Tesla’s Surge Doesn’t Impress Me – I’ve Seen Bubbles Before

Written by Jason Simpkins
Posted February 7, 2020

Tesla stock has more than doubled so far this year...

And I honestly couldn’t care less.

I know a bubble when I see one.

This is what they look like...

Tesla Stock Surge 1-20

Very, very few things can justify that kind of a climb when it comes to stocks. You typically only see it with small companies that acquire a savvy patent or make a major medical breakthrough. You don’t generally see it with companies that are already worth billions of dollars.

So yes, that makes this unique... But it doesn’t make it special.

Remember, this is the same old Tesla. Little has emerged to spur the stock to these heights. It’s just a resurgent sense of optimism about a company that’s always lived and died on huge promises, high expectations, and self-propelling hype.

It’s sort of like Donald Trump that way.

That’s not to say Tesla doesn’t have anything going for it, of course.

A new plant in Shanghai could help drive significant growth. Some of the problems that had plagued its Model 3 rollout were fixed, causing its car production to surge 50% in 2019. And most importantly of all, Tesla reported its first annual profit in 10 years as a company, generating $1.1 billion in cash flow after enduring a major finance crunch last spring.

That’s all good news. And it’s definitely rewarding for investors who were able to stomach last year’s debt issuance and stock dilution.

But it certainly doesn’t justify this price surge — not unless you believe Tesla’s wealthiest shareholders when they say the company is going to be generating $1 trillion in revenue by 2030.

I think we have to be a little more sober-minded than that, though.

After all, narrowly escaping a cash crunch and turning your first ever annual profit after 10 years of operation can’t inspire that much confidence.

No, this, like many other speculative bubbles I’ve seen, is being driven by excitement. (The same could be said for the people who pathologically short Tesla, as well.)

Hedge fund managers — especially those with portfolios benchmarked to the Russell 1000 Growth Index — are rushing to raise their allocations of the stock. At the same time, retail investors are chasing the publicity, and what they deem to be a futuristic growth play.

Again, though, that’s pretty par for the course with Tesla.

But let’s not also forget that it wasn't that long ago that Elon Musk was smoking weed on a podcast, looking absolutely off his rocker, and being investigated by the SEC.

Are we just going to forget all that?

Let’s say we do...

Am I to believe that the Tesla is the final form of the automobile, that no greater improvements will be made, and that this is what we’ll all be driving in due time?

Because I’m not buying that.

Not in a sector as cutthroat and competitive as the automobile market.

Not a chance.

A new fuel technology could quickly emerge, deliver massive gains to early investors, and totally kneecap Tesla in the process.

In fact, some people believe that’s already happening.

Indeed, a growing number of analysts — including our own Jimmy Mengel — believes advancements in fuel cell technology could put electric cars like the ones Tesla makes out of commission.

That’s because hydrogen fuel cells are cheaper, cleaner, and more efficient than the lithium batteries that Tesla and others rely on.

Hydrogen fuel cells don’t need costly input materials like lithium or rare earth metals, because they run on the world’s most abundant element. They take just minutes to charge, rather than hours. And unlike batteries, hydrogen fuel cells don’t degrade with each charging cycle.

So at the end of the day, it’s unlikely the Tesla bubble will last. To what extent it pops is the real question.

Will it correct or collapse?

And is there a cheaper, more impressive technology coming down the pike to reward early investors with massive gains?

Fight on,

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Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of The Wealth Warrior, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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