Is Tesla heading for a crash? Investors are on tenterhooks
Palo Alto, California - Will Tesla be the most valuable company in the world, or is the extraordinary trajectory of its share price just 2020’s version of Tulipmania?
That is the question galvanising investors on both sides of the Atlantic this week.
Tesla shares fell back sharply on Thursday, but only after the most astonishing rise. They soared nearly 40 percent over the first two days of this week, at one point hitting a record high of $969 (R14 500), more than double their value at the start of the year.
Even after last night’s close at $735, having earlier dropped as low as $704, they stand well above the $180 (R2700) of last summer.
Tesla’s electric cars may well be an idea whose time has come, but the share price has had seasoned traders clutching their foreheads and wondering what on earth is going on.
Although the company is based in Palo Alto, California, and listed in the US, small investors in Britain have a significant exposure to Tesla. Baillie Gifford, the UK wealth management firm, is the second-biggest shareholder in the company after its eccentric boss Elon Musk.
Fund manager James Anderson is one of Tesla’s biggest supporters, claiming it has the potential to become the world’s most valuable company.
Maybe. But to put the surge into perspective, the rise this week pegged its market value ahead of VW. That is even though the German carmaker delivered almost 11 million cars last year, while Tesla sold fewer than 400 000.
So what's going on?
There are a number of theories as to what is behind the rise. Some argue it is optimism about the huge potential for the cars, while others say it is a classic ‘short-squeeze’.
That is what happens when short-sellers, who bet on a share price falling, are caught out if it goes up instead. When they then try to close out their positions by buying the shares, they drive the price up even further.
Tesla certainly has been heavily shorted, with a number of leading hedge funds betting against the stock. Some analysts reckon there is a larger tech bubble encompassing other Silicon Valley stocks, which will sooner or later be burst.
For Musk himself, this may feel like sweet revenge, for now, on the short-sellers. He blamed them for his stress in 2018, which he described in a frank interview with the New York Times as an "excruciating" year. He said he worked 120-hour weeks, spent his 47th birthday in the office and resorted to sleeping pills.
Musk, 48, is South African and made his first fortune in the late 1990s when he sold dot-com publisher Zip2, which he had founded with his brother, for more than $300m.
An online bank he then founded merged with the company behind PayPal. He started SpaceX, which hopes to fly people into space, in 2002. Tesla was founded a year later in 2003.
There has been speculation over whether he might use recreational drugs after he has made reference to the number 420 on Twitter, which in the US is associated with cannabis. Musk denied it, saying "weed is not helpful for productivity".
In one Twitter outburst, he branded British hero diver Vernon Unsworth who helped free Thai boys from a cave where they were trapped, as a "pedo". He also got into hot water with US regulators over a tweet saying he wanted to take Tesla private, but reached a deal with the Securities and Exchange Commission over the episode.
This week he was tweeting fire emojis, in an apparent reference to the soaring share price.
His love life has also been turbulent. At the time of his divorce from his ex-wife Justine, a fantasy novelist, he was claiming to be broke. The paper value of his near 19 percent stake in Tesla now runs into many billions.
Happier news is that his girlfriend, the Canadian musician Grimes, 31, is having a baby. She is 25 weeks’ pregnant.
Where does the share price go from here?
Tesla fans point to the news that an electric battery joint venture with Panasonic is in profit and that the move to electric cars looks inexorable.
Evidence of that came in the UK Government decision to move forward by five years to 2035 a ban on new petrol diesel and hybrid cars. The bulls’ argument is that, in the face of the huge impetus to combat climate change, Tesla will be a winner.
Sceptics point out that what may look like the next big thing can turn out to be nothing of the sort, which is what happened with diesel.
Critics argue a big shift to electric would put huge strains on the grid, require mining in questionable regimes for minerals for batteries, and may not turn out to be a green option. The brand’s strength is a big plus, and the cars are covetable. But there are questions over whether it can maintain a competitive advantage as mainstream car makers get into electric.
The big question for investors is whether the stock offers good value. To justify this valuation, it would have to achieve very impressive growth and stay streets ahead of rivals.
Fasten your seat belts!Daily Mail