The Making of a Bubble: Tesla

Updated on April 9, 2018
jackclee lm profile image

Jack Lee, a retired engineer, worked at IBM for 28 years. He has traveled all over the world and has been an active investor for 10 years.

Introduction

In the past 20 years, we have seen a few bubbles and experienced their devastation of our investments and retirement funds. Today Tesla—which trades on NASDAQ is TSLA—is a bubble in the making, in my opinion. Here is a company that has basically one product which has not made money since its inception and now is touted as the next big thing. The electric car industry has not done well in recent years, despite the advances in battery technology. It has been propped up by government subsidies as part of the green movement. With the election of President Trump, these subsidies are due to expire and probably won't be renewed. Where does that leave Tesla?

- Apr. 2017

Background

The stock market is unlike any other market. It fluctuates up and down on a daily basis and sometimes due to public perception more than reality. If something is cool or the latest sensation, it cause a distortion of the market place. For a brief time, a stock value can be inflated based on perception and good will. Just as quickly, it can drop based on some negative or bad news. That is because there were no fundamentals behind the rise. The earnings and sales may not meet expectations.

TSLA has risen in the last 6 months from an average of $200 per share to $303 per share. That is a 50% rise. Meanwhile, it has a negative price/earnings ratio. It has failed to deliver on the projected number of cars shipped. The price of the car is still very high compared to comparable gas-powered cars. Recharging stations are still few and far between outside of California.

Compared to DOW and NASDAQ

DOT COM Bubble

Record Market Capitalization

Another key factor to look at is market capitalization. That is the value of a company based on the number of outstanding shares multiplied by the current stock price. By that calculation, Tesla is higher than GM or Ford, who manufactures and sells over 1 million cars a year with multiple models. By comparison, Tesla only sold an estimated 80,000 cars in 2016 with only 3 models. How did their market capitalization reach this level if not for a huge bubble?

Two Items to Watch For..

With the new Tesla electric cars, there are two things to watch for. First, a large cost of the vehicle is the lithium ion battery packs located under the carriage. As anyone knows who have owned cell phones, the battery is one of the first to go. After repeated charges, they degrade and will eventually not hold the charge. These cars are still new on the road, less than 10 years. Some gas engine powered cars are on the road for 20 years. Their lead battery having been replaced every 50 thousand miles or so. What is the effective life of Tesla's battery? Does anyone knows?

The second item to watch for is the dashboard interface. Tesla has replaced the traditional dashboard with a flat screen panel. This is a mistake in my opinion. My experiences with touch screens has been awful. How many times have I flown on airplanes where the touch screen did not work properly? Either it locks and fail to respond or the registration is off and the action I wanted to press is off target. The viewing ability is impaired sometimes due to reflections and sunlight. There is no mechanical backup. When the power goes, you are basically blind. For these problems, I think the Tesla dash is a disaster waiting to happen. In human factors engineering, where I studied 40 years ago, the first thing about machine design is that it must accommodate the humans using it. The second thing is to always provide a backup mechanical interface where even if power is out, the system may still function.

A good example learned the hard way was the power locks on doors and trunk and hood. Most well designed vehicles have a mechanical override to open the doors or hood or trunk. The reason is obvious. When a battery dies on a car, there is no way to open the door or hood to jumper the car. The same goes with power windows. Once the power is lost, how do you open a window without breaking the glass?

Continued Rise...

Tesla stock reaches new record on 5/1/2017 at $324 per share. In the first quarter of 2017, Tesla delivered a record of only 25,000 cars.

6/5/2017 - TSLA close at above $347.

The Bubble is Bursting...

Mar. 27, 2018. TSLA fell below 280.

Summary

I am just stating the obvious. I guess there is always a chance I could be wrong here. Tesla may just be the next Amazon or Apple...or it could just be similar to the dot.com bubble.

Questions & Answers

    © 2017 Jack Lee

    Comments

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      • jackclee lm profile imageAUTHOR

        Jack Lee 

        15 months ago from Yorktown NY

        You can like the car but stay away from the stock. That is my humble advice.

      • profile image

        WandaShip 

        15 months ago

        Im not sure about the bubble but I do like that new electric car they came out with

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