Elon Musk The Tesla ‘Bubbleman’ Strikes Again

PARIS, FRANCE - NOVEMBER 29: New Tesla Model S showroom has arrived in Paris, France. Tesla is an American company that designs, manufactures, and sells electric cars

He’s one of the best known faces in Silicon Valley.

He’s founded companies from scratch, and turned them into multi-billion dollar enterprises.

If he wanted to retire, he could have done so 15 years ago, and would never have had to work a day since.

And yet, making his first billion dollars wasn’t the end of the journey for this accomplished entrepreneur…it was just the beginning.

Today, he’s worth US$12.5 billion. According to Forbes, that makes him the 83rd richest person in the world. He’s got it sweet, right?

Not so fast. He may be a billionaire, but, in the investment world, he’s not without controversy. And now, his reputation has spread to an entirely different part of the market — books.

While seemingly unconnected to the business world, recent events in the quiet world of literature could provide an important insight into how investors view Tesla Motors Inc. [NASDAQ:TSLA] CEO, Elon Musk…

Tesla Motors and Elon Musk are the hottest story in Silicon Valley.

Tesla and Musk were able to do for electric cars what nobody else before, and arguably since, have been able to do.

That is, to make an electric car appealing to consumers. Not just from an environmental standpoint, but from an aesthetic standpoint.

There can’t be much argument, Tesla’s cars are head-turners. Before Tesla, electric cars were small, boxy, and not very easy on the eye. Electric cars had to be small. The larger and heavier the car, the more battery power it uses.

Tesla changed that. Instead of making small boxy cars, the Tesla S is a full-sized sedan. At a glance, you could mistake it for an Audi S6, a Maserati, or a Jaguar. That’s some achievement. Not only has Tesla made electric cars that are good for the environment, they have made a car that’s cool.

But don’t for a minute think that it’s completely a ‘feel good’ story for Tesla and Musk. There is plenty about Tesla that should have investors worrying about the future of the company’s sky-high stock price. We’ll explain…

Book bubble, stock bubble

You may wonder what in the heck books have to do with Tesla, Musk, and electric cars. Directly, nothing. But as an insight into how investors regard Tesla’s stock, a recent stir in the book industry could be telling.

Here’s how Bloomberg reported the matter:

At the conclusion of a press event, I asked Musk, an avid reader, what he’s been into lately. He started to demur, then checked himself. “Actually, I’m reading a book called Twelve Against the Gods, by Bolitho,” he said. “It’s really quite good.”

Musk being Musk, news of his latest read sent the price of the few copies into orbit, surging by more than 9000 per cent.

Curious, I picked up a used copy on Amazon.com on Tuesday night for $US6.35; there were at least a dozen copies to choose from. By morning, the price of a paperback had jumped to $US99.99. At the time of publication, there was this used hardcover left to buy at Amazon at the staggering price of $US595.

We checked it out. The article is right. One copy is available on Amazon.com, priced at US$595. That’s a lot of dough for a book nobody has ever heard of.

But while this may be an interesting story about a book price going bonkers, the real interesting aspect is the impact Musk can have on the price of anything, just by uttering or writing a few short words.

There is a group of people who are entranced by everything to do with Elon Musk.

Musk isn’t the first to attract this kind of fandom. Oprah Winfrey could famously help increase book sales by thousands of percent, just by recommending a tome in her book club.

Musk may not yet have that same influence in the book world, but he arguably has a bigger influence in the stock market — especially when it comes to the impact of his words on Tesla’s stock price.

Tesla may produce smart looking cars. But in terms of its manufacturing capability and annual production volumes, Tesla is a minnow. Currently, Tesla can produce around 100,000 cars per year. However, based on 2015 production numbers, Tesla is only making around 50,000 cars per year — half of its manufacturing capacity.

That may sound a lot. But let’s compare. In 2014, Ford Motor Co [NYSE:F] produced 3.2 million passenger cars. Add to that some 2.6 million light commercial vehicles, and nearly 100,000 heavy trucks. That’s around six million vehicles a year.

To put that in perspective, Ford produces in six days, what Tesla produces in a year. That’s stunning.

But even more stunning is the fact that Ford has a market cap of US$48.7 billion, while Tesla is only valued slightly less at US$33.5 billion.

Why so?

Put it down to fandom.

Blame it on the fans

Despite Tesla missing virtually every production, revenue and profit target, an inspirational speech or well-timed ‘Tweet’ from Musk, can send the Tesla stock price soaring.

And now, just as Musk’s words can move the Tesla stock price, it seems his words can move book prices too.

There may not be much in common between electric cars and books. But when the common denominator is Elon Musk, you can see the same dynamics play out. Just as Musk’s current book of choice isn’t really worth US$595 (no doubt the price will be much lower a week from now, when the excitement has died down), we’ll argue Tesla isn’t really worth US$33.5 billion.

At play is the phenomenon of Elon Musk. Regardless of the true value, investors and fans want whatever Musk is selling. But just as the price of Musk’s favourite read isn’t likely to stay sky-high for much longer, we’ll bet the Tesla stock price won’t stay high for much longer either.

There’s a bubble in Musk’s favourite book. And there’s a bubble in the Tesla stock price. Sooner or later, the price of both will come crashing back down to Earth.


Kris Sayce,
For The Daily Reckoning

Editor’s Note: This article was originally published in Money Morning.

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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