Tesla: Icon of the “Everything Bubble”
...Tesla is less interesting as a subject of investment research. Rather, it should be viewed as performance art...
Tesla is a zombie company – one of many with no hope of surviving in anything but the deluge of cash, ZIRP, and bubble-mania unleashed by the Federal Reserve over the last fifteen years.
Despite ultra-loose conditions, Tesla has consistently lost money since its inception, instead riding high on a stratospheric stock price tethered to nothing but crazy promises and an army of true believers at home in front of their Robinhood accounts.
Having raised capital several times in the last decade, in order to stay solvent and shore up liquidity, Tesla has mastered the psychological manipulation of its dimwitted shareholders using a combination of global-warming propaganda and old-fashioned stock pumping tactics. It has also attracted several vocal supporters in the investment community, including Cathie Wood – a fund manager known for her serial destruction of capital – and a gang of investment bank flunkies called sell-side analysts.
Like many zombies, Tesla is less interesting as a subject of investment research. Rather, it should be viewed as performance art – a real time, dynamic representation of how monetary manipulation by the Fed and the lack of a free market distort human behavior and warp the functioning of the merit-based profit and loss system.
Burn Cash, Not Gasoline
On Tuesday, April 23rd, Tesla announced earnings for the first quarter of 2024. Revenues declined by 15% from the prior quarter and 9% from the same period last year. Even by its own incorrect and artificially positive measure, Tesla’s free cash flow was negative $2.5 billion for the quarter.
In the ten years prior to this quarterly report, during a period of zero interest rates and the loosest monetary policy in American history, Tesla burned over $18 billion in cash. This doesn’t deduct the billions in subsidies granted Tesla in the form of ZEV credits and other corporate welfare. Adjust for those and the figure is far more negative.
Figure 1: Tesla Free Cash Flow
Stock price, ostensibly no longer connected to profits, has suffered only minimally in the wider scheme of things. Tesla, once worth over a trillion dollars, is now down to a measly $500 billion market cap. That’s half a trillion dollars for a perennial money-loser with negative revenue growth.
Figure 2: Tesla Stock Price Chart (last 5 years)
And Now for Something New
Following Tesla’s latest quarterly report, in which the reality of auto industry economics once again asserted itself against the fantasy of pseudo-tech mumbo jumbo, the stock jumped roughly 13% - equivalent to the entire market cap of General Motors or Ford. The reason? Tesla’s CEO, Elon Musk, communicated plans to accelerate production of more affordable car models and doubled down on plans to create a fully autonomous “cyber-cab” or “robo-taxi.”
The former promise is economically illiterate, as a company that can’t make money selling higher-margin luxury vehicles is simply going to lose more selling low-margin economy cars. Efficiency is not a skill set the company possesses. Further, when an analyst pressed for a timeline on delivery of such models, he was conspicuously ignored.
The latter promise is future faking – a manipulative tactic that uses over-promising and fantasies about the future to dissuade partners (i.e., investors) from abandoning a relationship now, lest they miss out on all the future glory. Tesla, and Musk specifically, has been using this approach for the better part of a decade, especially when the stock price is on a downtrend. Given the historical success of this tactic with its supporters, Tesla can hardly be blamed for continuing to deploy it.
The Golden Age of Fraud
Tesla stock thrives in today’s financialized economy where production and profits matter less than narrative, unethical practices are part and parcel of corporate behavior, and a spirit of excessive speculation infects every aspect of society. At root is a social-democratic system built on theft and redistribution, guaranteeing that productive effort and competence is forsaken while political skills are pursued and rewarded. In this Golden Age of Fraud, few companies have taken greater advantage than Tesla.
In recent weeks, Tesla has seen multiple key executives resign, reported billions in losses, and announced plans to sack 10% of its workforce, all while generating a stench of desperation manifesting in crazy promises about the future. But if you think that’s bad news, you are mistaken. Just wait until the robo-taxis get here.
I have always heard that the normal course of events for a luxury product such as EVs is that they sell for a high price to a relatively select group of people who can afford them. The company then invests that revenue into more efficient production processes that enable them to produce lower priced versions of these or other products to expand their market. The price of these products then falls, often dramatically. Cell phones are a general example of this (simplified) process when we consider what a cell phone cost in 1985 versus today. However, when it comes to EVs, the companies cannot even convince enough rich people to buy their products in order to stay afloat even with massive government subsidies the world over, as you aptly detail. And, regardless of the price, many people simply do not want EVs because they see little value proposition in them to replace a product that works just fine with one that has numerous issues and offers little extra, unlike cell phones compared to home phones.
I recently read about the 3,000 or so car dealers who wrote to the Washington administration to plead with them to halt or slow their plans for EV adoption because these dealers are losing money on the glut of EVs on their lots taking up space and not selling.
Love the mention of future faking…first the EV bubble, then AI.