Tesla (NASDAQ: TSLA) stock was looking down and out earlier this year. Car sales were slowing. And June’s highly-anticipated robotaxi launch in Austin, Texas, was about as exciting as cold soup.
But CEO Elon Musk piled in with a $1bn investment in the company on 12 September. The stock had already been recovering. And at the time of writing, it’s more than doubled since its 52-week low.
Why does this make me nervous?
In one light, Musk’s new purchase suggests he could be making good on his talk of refocusing on the company. Many investors lost faith when he became distracted by politics. And more than a few don’t like seeing the boss pulled between multiple competing interests.
It looks like good news on that front.
Investing guru?
From another direction, is Elon Musk an ace investor with a track record of only buying when he sees a clear value opportunity?
I only need to think back to the eye-watering amount he paid to buy Twitter, since renamed X and now a shadow of what it was. Elon Musk has some admirable qualities. But he’s no Warren Buffett.
At the time, Danni Hewson at AJ Bell even quipped: “An inventive and ungenerous interpretation of Musk’s actions is he saw the news about Larry Ellison becoming the world’s richest man and decided to juice Tesla stock a bit to regain the title.”
Reality
What’s this about a reality distortion field? It’s a term Bud Tribble at Apple famously used to describe the way Steve Jobs was able to convince himself and others that apparently impossible things could be achieved.
These days, Elon Musk increasingly seems to be using a similar kind of tool. Disappointingly, I’m not the first to see the similarity. It seems Richard Waters at the Financial Times made the connection back in 2016. I doff my cap.
Crucially, Steve Jobs was singularly focused on Apple. And more often than not, he pulled it off. Can Musk do the same? Can he get Tesla back on track the way Jobs did at Apple? That remains to be seen.
What to do?
Part of me sees Tesla and Musk as genuinely visionary, with an array of leading-edge, high-tech developments having the potential to revolutionise the automation of so many aspects of future life. And it’s a mistake to value Tesla just as a car maker, right?
The other me is the one who just read the headline “Tesla: Time To Wake Up From The Dream, Strong Sell.” It’s from Agar Capital at Seeking Alpha, who points out that, right now, Tesla’s business actually is only making electric cars — with the rest described as “narrative.”
It’s potentially lucractive narrative. But is it narrative worth a forward price-to-earnings (P/E) ratio of 300? I have my doubts.
I think investors might do well to consider holding off for a while, watch where the business goes in the next year or so, and see what happens to that valuation.
