Th Rise And Fall Of Tesla

TSLA has been one of the most "emotional" stocks in 2022. Rising for no reason to absolutely irrational  levels and then dropping like a stone. What is interesting is what were the drivers for that behavior.

The fall is probably much easier to explain: it is back to reality. Recession is on the horizon and as a car maker Tesla does not have any inherent advantage. The autonomous driving software does not work (not a surprise, as this is one of the most challenging problems to solve) and the rest - batteries, electric drive trains, software subsystems are equivalent to many other EVs. To be honest (without diving deep into the details), it is a car like may other cars. Some like it, some don't, but in the end there is nothing special about it. In other words, the competition has caught up and now it is a matter of individual taste, and even more importantly, even a decision to own a car at all.

The rise was driven entirely by hype and led to the 2022 peak of irrational exuberance. And to some extent it was joined by a similar action in crypto. Both started by the fourth quantitative easing, or effectively printing money during the COVID pandemic. The money which had nowhere to go other than the stock market. The effect of that was stocks rising across the board for "no reason" and people in certain circles started feeling very smart about being successful investors. There was a podcast on Bloomberg about a year ago interviewing a family who quit their jobs after putting all their cash in Bitcoin and watching their net worth going up and up. Their neighbors and friends followed suite and there was this ever growing complacency.

But as all good times come to an end, the trend has reversed. Bitcoin lost the value and so has TSLA. As usual this was initially considered temporary and benign, but the prices have kept falling and falling and falling. Typical boom and bust cycle without fundamentals. 

I bring Tesla and Bitcoin together here, as there are many similarities. Both have relatively small intrinsic value. As I write this TSLA is still in the $140 $130 $120 range (and keeps falling) while if priced like its peer automakers, it could be $20. Compare that to the all time high of over $400. Bitcoin's intrinsic value is zero. It is a purely speculative instrument and in the end nobody needs it. But if it falls to $3000 (from $60000), this will be the same 20x fall as TSLA's from $400 to $20. They may also be another interesting link. It is not a secret that many Tesla customers hold TSLA stock, a super loyal audience, which was "smart" to jump on a growing stock trend, and use some small portion of profits to buy a Tesla car. Statistics also tell us about the link between crypto investors and Tesla customers - there is a big overlap here, suggesting successful Bitcoin holders were using some profits to buy Tesla cars. Tesla was in vogue in some circles. And now we have this self-fulfilling prophecy which cuts demand for Teslas, as the key audience is no longer liquid.

I'm intrigued to see how this will all end. Elon's situation with Twitter (I believe to some extent this was not fully intentional, as he really did not want to buy the company, just make some noise and an excuse to sell TSLA at the peak, but got sucked in) leaves Tesla without a leader. And without a roadmap. Cybertruck is canceled, Semi can only haul chips, as soda bottles are too heavy, and the original S,E,X,Y have aged and are no longer sexy. And of course there will be no Full Self Driving (FSD) and class action suits are mounting.