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The Making of a Bubble: Tesla

Updated on April 11, 2017
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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?

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.

© 2017 Jack Lee

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      WandaShip 11 days ago

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

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      Jack Lee 11 days ago from Yorktown NY

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

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