## Tuesday, July 17, 2018 ... //

### Out of Tesla's stock price, $300 is due to Musk's silly PC clichés & government's distortion of markets I think that most people who seriously trade stocks (or invest into stocks) will agree that they are usually trying to estimate the fair or sustainable price of their stocks with the precision that is finer than 10%. Serious investors estimate the earnings with a similar accuracy and think hard whether P/E (the price-to-earning ratio) should be 10 or 20 and what could affect it. At the end, the stock price should be equal to the mean value of discounted life-long profits that the company will generate. So investing isn't quite a high-precision physical science but it is clearly about numbers that are supposed to reflect some underlying reality rather accurately. Meanwhile, there are things one can buy where the precision isn't as good as 10%. In fact, the current price routinely differs from any fundamental value by orders of magnitude – sometimes infinitely many orders of magnitude (like in the case of the Bitcoin and other unbacked, worthless cryptocurrencies). Tesla Motors stocks are somewhere in between regular stocks of car companies and the Bitcoin. In the sense of the linear scale, Tesla is almost certainly closer to the Bitcoin because most of its price has nothing to do with realistic expectations about the business. More than 50% of the stock price is unexplainable by the usual rational computations and estimates. Most of the price reflects a religion of a sort, an assumption that the logic and numbers will change dramatically in the future and in the new scheme of the world, Tesla (like the Bitcoin) will play a role similar to God. Tesla Motors is no new company. It was founded in 2003 – i.e. 15 years ago. And there has been no clear technological advance since that time. Electric cars had lots of well-known disadvantages and they still have them. Moreover, a Democratic administration that tends to support similar "bad but politically correct solutions" has been replaced by Donald Trump. For all these reasons, I think that it's right to expect that it is getting harder, not easier, for Tesla to make profit. Model S was the world's bestselling plug-in electric car in 2015. But others can produce electric cars as well. There is nothing high-tech about that – it's been done for more than a century. These days, the world's bestselling car is BAIC EC, ahead of Nissan Leaf that was the previous leader. I think that most of the Tesla fans haven't even heard of BAIC EC. There are numerous other models that are ahead of Tesla cars in many countries. At current rates, Tesla produces some 100,000 cars a year. If extrapolated without too much hype, that would be one million cars per decade. Because the capitalization of Tesla is over$50 billion, you really need some $50,000 profit on each of these cars – so far, Tesla has a small loss per every car – to make the numbers meaningful. Such dreams look unreasonable. The cars are already overpriced even for the modest community of potential buyers (100,000 a year). To raise the profits, you need to increase the number of sold units, but then you need many more ordinary, less fanatical buyers, and the profit margin from those will almost certainly be worse than the profit margin from the current buyers (which is already negative). Elon Musk is unquestionably a crony capitalist. The subsidies have always been vital for Tesla Motors to at least pretend that it may act as a business. Elon Musk has been a convenient corporate ally of the lying politicians who love to spread fairy-tales about the dangerous climate change and related pseudoscientific falsehoods. The government (well, governments) haven't provided Musk (or his buyers, it doesn't matter where you insert the "support") just with the direct money. They have also provided him with the propagation of the fairy-tales that are used to justify the continued existence of Tesla Motors and its claimed superiority. What I mean is that most of the climate hysteria has been funded or ordered by the governments and Elon Musk has always been a partial beneficiary of this huge propaganda spending. When millions of stupid (mostly young) people are persuaded that we face some dangerous man-made climate change and things like "renewables" and electric cars are needed to save the world, they may easily become both buyers of the electric cars as well as investors into the Tesla Motor stock. I find it remarkable to compare Tesla Motors with a completely hype-free carmaker, the Volkswagen Group. The Volkswagen Group makes 11 million vehicles a year – 110 times higher than Tesla. They include electric cars that are analogous to Tesla's. For some reason, the capitalization of the Volkswagen Group is just$85 billion, i.e. 50% higher than Tesla. Tesla has a 70 times higher "capitalization per produced car in a year" than the Volkswagen Group even though the profit from one Tesla car is much lower than the profit from one Volkswagen Group car (well, Tesla's is negative).

Or take a part of the Volkswagen Group. The second most profitable branch (after Porsche) is Škoda, the Czech brand. It is currently producing 1.3 million cars a year, 13 times Tesla's number. Concerning profit margins, Porsche has 18.5% and Škoda (ahead of Audi, VW, Seat, and others) had 9.7% in 2017. You know, this is what a healthy business looks like. 1.3 million cars at a 10% margin. Still, the market capitalization of Škoda within the Volkswagen Group could be less than $10 billion. And yes, Škoda will also make a fully electric car in 2020 and five models by 2025. Tesla has a vastly higher number of "sell calls" by actual analysts. So how is it possible that its price keeps on floating above$300 and the capitalization is above $50 billion? You should think about the numbers in terms of the cult member fees. Elon Musk has 22.3 million Twitter followers. If the average Twitter follower has invested$2,000 into Tesla's stock, which he or she thinks to be a good idea not because of business reasons but because of the saving of the world or some ideology, you easily explain the $50 billion capitalization. (Well, the total invested money was less than$50 billion because some of the investment was already inflated along with the bubble – they needed to invest less than what they think to possess now.)

And that's what is mostly happening, I think. Like the millions of youngsters who bought the Bitcoin at any price for their $5,000 could have pumped the Bitcoin capitalization above$100 billion, similar and sometimes the same "investors" who redirect $2,000 to the Tesla stock could have pumped the Tesla capitalization above$50 billion.

Now, the totally different dynamics and motivation for this "investment" has some consequences. In particular, the price is changing because of different events. During the weekend, I predicted a rather substantial drop of the Tesla stock price on Monday – and I think it's right to say that I was right. Tesla has lost some 3% or 4% if denominated in the Euros.

Why was it? I think it's because of the bad press.

It was found out that Musk has paid $38,900 to the Republican "Protect the House" PAC. It's a modest amount for a billionaire but the consequences for the image are deep. Musk had to re-explain that he was an independent socialist, a moderate utopian anarchist who is saving the world, and similar šitty adjectives and nouns that his brain-dead fan base mostly considers to be compliments. To make things worse, Musk has highlighted his being an aggressive spoiled brat in another incident. In Thailand, the soccer boys were caught in a cave. Musk has proposed a "kid-sized submarine" within 8 hours that would save the boys. British caver Vern Unsworth (63-years-old) finally saved all the boys by diving there. A simple, old-fashioned solution. You know, because Unsworth actually succeeded and is considered a hero by many, he may have some credentials to teach us what works and what doesn't work when you're saving kids in a cave. In particular, he advised Elon Musk to insert his kid-sized submarine somewhere [he implicitly meant Musk's aß, I think] because it would have been useless. Musk didn't have an idea how one has to move in such conditions. Well, I am not quite sure that Unsworth is right that the submarine wouldn't work. A sufficiently intelligent, well-designed gadget could surely replace a human. The question is whether the gadget constructed by Musk in several hours could be an example. I think that Unsworth is probably right that it wouldn't work. In particular, I think that Musk's submarine wouldn't be capable of bending in the corners or around the obstacles as well as the human diver needed to. But what I am sure about is that Musk's gadget wasn't neccessary. Instead, it was meant to be a P.R. stunt promoting the image of Musk as a technological "guru". These stunts are useless Rube Goldberg machines that try to do something just because "yes, we can". This description really holds for the Tesla cars and Hyperloop, too. OK, because Musk's offers were shown to be useless stunts, Musk felt offended. In a tweet, he promised a movie showing that his mission would have been successful – well, great, I've seen many movies, including dozens in which people traveled in time. Because that movie would be a "punishment" for Unsworth, Musk seemed to think, Musk could have added: Sorry pedo guy, you really did ask for it. Because Unsworth saved the kids – which Musk also wanted to do, but he failed – Unsworth must be a paedophile. Unsworth is considering a lawsuit against Musk. Too bad that he may only win a worthless would-be car company. But I wish Unsworth a lot of good luck. People – including your humble correspondent – occasionally use some slurs at Twitter and similar servers. But this "pedo guy" is somewhat special. It really shows that Musk is morally isomorphic to the whining and lying feminist whores in the MeToo movement. He finds a man inconvenient so he simply accuses him of some sexual wrongdoings. Musk expects – and he surely has a reason – that some of this dirt will be stuck because much of the society has switched to the presumption of guilt and many people failed to see the basic point that what Elon Musk says should be ignored because he's mostly full of šit and almost everything he says is designed to impress impressionable simpletons. The agreement between his words and reality are purely coincidental, like the success of the broken clocks that show the correct time twice a day. So the collapse of Tesla may ultimately be sparked not by Tesla's inability to pay the debt and other things. Musk may just tweet something politically incorrect, a big fraction of the "investors" sell their Tesla stock on the following day while the "consumers" will cancel their orders, and Tesla will be over within days. It's a crazy world where such immaterial events that are all about someone's crazy image decide about$50 billion – something that would be enough for the whole mankind to live comfortably for a year just some centuries ago.

But that's our world, that's the contemporary mankind. Much of the mankind – and its money – is invested into successfully promoted illusions and delusions. You can literally become a billionaire just by manipulating many people and make them believe nonsensical things. In fact, it seems that Musk doesn'[t have to work too hard: there is a huge demand for visible people who say stupid things. Millions of folks want such leaders – and they're willing to turn them into billionaires. There's surely some sense in which the mankind has only gone through the minimal progress since the Middle Ages.

Incidentally, Elon Musk plans the creation of a professional company that will spread the illusions and delusions and that will viscerally attack all of his critics and otherwise inconvenient people. He has called the company Pravda – which is the Slavic word for the truth but it's the appropriate name because Musk took it directly from the Soviet Union's official communist propaganda daily. The name would be the same, the methodology would be almost the same – and there would still be millions of people who would take his rants seriously.