It’s not surprising that I don’t know anyone who owns a Tesla, given that total sales since the company was founded in 2003 barely top 200,000 vehicles (and all but 12 were sold in Hollywood).
In contrast, General Motors typically sells more than a half million vehicles in a quarter. Worldwide, there are more than 907 million consumer vehicles and 329 million commercial vehicles in use, leaving Tesla with a market share of just above 0%.
How can a company that’s unprofitable and that sells vehicles that almost no one owns be the country’s top auto maker? Granted, GM and Ford aren’t the companies they used to be, but Tesla isn’t even close to what GM and Ford are now.
Tesla’s high market cap is a result of America’s love affair with all things considered to be green, media hype, Hollywood hype and Elon Musk hype. It’s appropriate that the company is named after Nikola Tesla, whose alleged invention of an electric car in the 1930s turned out to be a hoax.
Having never owned or even driven one, I can’t say whether Tesla vehicles should be the next big thing. Online reviews aren’t very helpful, either. Car and Driver gives the sleek Tesla Model S five stars, while the first review on Consumer Affairs gives his Tesla one star and says, “It’s worse than you can possibly imagine … ”
But it’s really not about cars, is it?
Mention Tesla and most people will likely think of billionaire Elon Musk, who is generally portrayed by media as a Steve Jobs-like visionary, but with a more amiable personality (even though he rarely gives interviews).
Musk is a serial entrepreneur who co-founded PayPal, SpaceX and a zillion other companies. He’s not the founder of Tesla, but he’s certainly the face of the company and the reason for its meteoric stock rise.
Musk reinforced his green cred last year when Tesla acquired SolarCity, the second largest provider of solar panels in the U.S., which just happened to be owned by his cousins, Lyndon and Peter Rive.
Why Tesla is Overpriced
We’ll give the man credit for having a great imagination, but has Tesla earned its market cap? Not even close. Consider the reality.
Elon Musk’s mortality. First, if it really is all about Elon, what happens if, like Steve Jobs, he proves to be mortal? As goes Elon, so goes Tesla.
Elon Musk is more profitable than Tesla. What if his words of wisdom turn out to benefit the Musk family more than they benefit shareholders? With a net worth of just under $15 billion, Musk is doing quite well for himself and he’s close to earning another $1.4 billion from his Tesla stock options. So the billionaire entrepreneur will receive more than a billion dollars for running a company that has lost billions of dollars.
Elon Musk may not sell his shares as soon as they vest, but his brother Kimbal, who is a board member, has been selling his vested shares.
SolarCity. One reason Musk has so many stock options is that the options he had in SolarCity converted to Tesla options after the purchase. Ditto for options belonging to cousin Lyndon Rive. Ironically, some people who criticize President Trump for taking care of his family haven’t noticed the Musk family connections.
SolarCity, meanwhile, has been bleeding money at about the same rate as Tesla. But don’t worry. The company laid off 3,000 employees, so it should be fine now.
We’re all paying for Tesla. Even if you don’t own Tesla stock, you’re still a stakeholder. Tesla wouldn’t be where it is without the support of U.S. taxpayers.
“A fair amount of Tesla’s revenue, namely $882 million over the last four years, was generated from ZEV and GHG credit sales, and not from genuine automotive business,” according to Seeking Alpha. “Without environmental credit sales, the company’s net loss would look worse and the two much criticized profitable quarter fabrications in Q1 2014 and Q3 2016 would not have been achieved.”
In addition, purchasers of EVs receive a $7,500 federal tax credit, as well as state credits in many cases. Without government subsidies, the electric vehicle (EV) market would most likely not exist.
Meanwhile, SolarCity’s solar panel business most definitely wouldn’t exist without government subsidies and regulatory requirements that utility companies purchase solar-generated energy at exorbitant prices. The government provides a 30% investment tax credit for solar installations.
Tesla is bleeding money. Those environmental credits, which other companies purchase so they can exceed environmental standards without being fined, may have enabled Tesla to be profitable for two quarters, but overall, the company is bleeding money. So is SolarCity. Each of them have accumulated net losses of about $2 billion over the past four years.
Most companies would see their stocks tank under those conditions, yet Tesla is riding high. After all, third quarter sales more than doubled in 2016 from a year earlier (from almost nothing to double that).
Environmental benefits are nil. Maybe middle class taxpayers wouldn’t mind subsidizing millionaires so they can purchase Teslas and make billionaire Elon Musk even richer if there were an environmental benefit to doing so. But is there?
Maybe, but not much of a benefit. As Wired points out, “Tesla’s electric cars aren’t as green as you might think.”
“Devonshire Research Group, an investment firm that specializes in valuing tech companies, dug into the data and concluded that Tesla’s environmental benefits may be more hyped than warranted,” according to Wired. “Devonshire isn’t saying that Tesla is pulling a Volkswagen, or that its cars are spewing greenhouse gases from invisible tailpipes. It’s arguing that Teslas (and, by extension, all electric vehicles) create pollution and carbon emissions in other ways. Each stage of an EV’s life has environmental impacts, and while they aren’t as obvious as a tailpipe pumping out fumes, that doesn’t make them any less damaging.”
Too bad environmentalists killed off nuclear power, which had no impact on climate change, because instead, coal generates 44% of our electric power. Thanks to fracking, though, natural gas is beginning to replace coal and has already had a greater positive impact on the environment than EVs – without government subsidies.
During the 1950s and 1960s, it was said that, “What’s good for General Motors is good for the country.” Today, we might say, “What’s good for Tesla is good for Elon Musk.”