Musk’s back story, which to some just seems like ancient history, is worth reviewing, if just a little. I have written before about Tesla the investment and Elon Musk the man multiple time before and to keep from being repetitive I’ll just link to those.
Investing in Tesla, and Rivian – Missives to the Abyss – January 2, 2022
Musk no friend of the American Right or Left – Missives to the Abyss – December 21, 2022
A Year Later, Investing in Tesla, and Rivian – Missives to the Abyss – January 2, 2023
Elon Musk and Trump Voters – Missives to the Abyss – December 27, 2024
What I do want to write about is Tesla the investment today and the very real possibility that in the very near future Tesla’s stock price will repeat some of the most spectacular crashes of the bursting of the Dot.com bubble of about a quarter of a century ago.
Despite what potential investors may hear today from some of Tesla’s fanboys, Tesla is a car company. Tesla may be developing autonomous driving, Robotaxis, Optimus robots, energy storage, and many other potential revenue generators from Musk’s fertile imagination, but selling cars is Tesla’s bread and butter and the company’s reason for being. Investors may even marvel at some of the accomplishments of Musk’s Space X, but Space X is not owned by Tesla and not publicly held, so whatever investors hear about Space X’s revenues and earnings, those numbers do not accrue to Tesla’s investors and the numbers do not have the same safeguards for reliability as the publicly held Tesla.
So, the vast majority of Tesla’s revenues and earnings are generated from the sale of cars and last year, in 2024, Tesla sold 1,789,000 cars, down from 1,808,000 cars sold in 2023. This in and of itself should be a problem for Tesla in supporting their share price, because even with Tesla’s 35% decline already this year the company still has a price to earnings today of 128. This means that for every dollar of earnings investors in Tesla have to pay $128. By way of comparison as of Friday’s close, Toyota’s price to earnings is 7.37, Ford’s 6.78, General Motors’ 7.45, and BMW’s 6.44. Generally, the lower the price to earnings the better the investment and companies in similar industries have similar price to earnings. A high price to earnings can be supported if the company’s revenues and earnings are projected to increase in the foreseeable future, and in the case of a price to earnings of 128 explosively increase, but is that Tesla?
The narrative for Tesla in the first decade plus was that Tesla was disrupting the whole automotive industry by producing, marketing, and selling electric cars on a large scale, and Tesla was the only one doing it. And for a while, Tesla was really the only company doing so on any real scale. This is no longer the case. Tesla has competition and Tesla is losing to that competition. As one example, in January of 2025 Tesla sales fell by 45% in Europe versus January of 2024 while EV sales in total in the same period increased by 34%. Even in 2024, before Musk made himself persona non-grata for so many of his potential customers, Tesla’s sales declined by 1% while the EV market increased by 7.3%. And it seems as if the anti-Musk sentiment has greatly accelerated since January. Tesla does not have the car sales and will not have the sales to support their evaluation, not even close. The release Tesla’s next quarterly report, which should be late April or early May, should prove to be a big day for Elon Musk.
One person who should feel very vindicated in the fall of Tesla and Musk, should it continue, is the investor Warren Buffet. Buffet has been providing vastly superior returns for his investors since the 1950’s and is the humblest of multi-billionaires, if such exist. One of his favorite principles in evaluating potential investments is does the company have significant barriers of entry that protect it from competitors? The term Buffet uses for these barriers is “moats,” like the moat around a medieval castle.
There was a time when there was a moat around Tesla because, as has been said, Tesla was the only company selling electric cars in mass. During this time, in 2018, Musk took the opportunity to mock Buffet. “First of all, I think moats are lame.” Musk went on to explain in his own dismissive manner. “They’re like nice in a sort of quaint, vestigial way. But if your only defense against invading armies is a moat, you will not last long. What matters is the pace of innovation. That is the fundamental determinant of competitiveness.”
Warren Buffett Response to Elon Musk Criticism That ‘Moats Are Lame’ – Business Insider
Now it appears that not only has Tesla lost the moat around their company, or kept up with the pace of innovation of their competitors, but Musk has also alienated vast numbers of Tesla’s potential customers. Brilliant.
Tesla may still surprise with Robotaxis or Optimus robots, two emerging businesses where Tesla has not proven they can be profitable and there already are established competitors, or even some other area, but I would not bet on it.
Hubris does not come without a cost.