Tesla just hit a trillion-dollar market cap.
Trillion with a capital T.
Things are so crazy right now that Elon Musk’s net worth grew by $36 billion in a single day.
If the company was a cooperative, each of Tesla’s 70,000+ employees would be sitting on a $14 million fortune.
But, of course, Tesla isn’t a co-op — and it isn’t worth a trillion dollars.
It isn’t worth a tenth that much.
What is $TSLA actually worth?
To Tesla’s credit — and unlike its past four years — the company actually made a small profit in 2020… derived almost exclusively from Bitcoin and corporate socialism.
The thing is, a measly $3.4 billion in not-selling-real-products profits doesn’t remotely justify a trilly market cap.
We need some context:
The price-to-earnings (P/E) ratio is considered the benchmark number for comparing one company’s stock price to another. The ratio is based on the current stock price divided by the trailing 12-month earnings per share. If a stock price is $10/share, and the P/E ratio is 10, it means that company is earning $1 per share. If you buy a $10 share with a P/E of 20, it’ll roughly take you 20 years to break even.
Warren Buffett likes to buy stocks with a P/E of around 12.
The S&P 500’s long-term median P/E ratio is around 15.
The S&P 500’s current P/E ratio is around 29 — nearly double its century-long average — despite the pandemic. (#Bubble)
Apple’s P/E is typically around 30.
Amazon’s P/E hovers around 60.
Tesla’s P/E ratio is currently over 330.
Would you really buy a business with an ROI of 0.003%?
Would you acquire a company that would take over three centuries to break even?
Cue the irrational fanboys:
“But Tesla’s future potential is huge!”
*But not compared to its current price.
To fall in line with the S&P’s historical averages and provide a reasonable rate of real return, Tesla would need to 22X its earnings to nearly $75 billion, nearly four times Amazon’s profits last year.
To provide a 10% annual return at a trillion-dollar market cap, Tesla would need to 29X its current profits.
Versus last year’s profit margins, that’s well over $3 trillion in annual revenue.
That’s nearly 6X more revenue than the largest revenue-earning company on earth.
It’s just not going to happen.
Double bubble trouble
Objectively, Tesla is wildly overpriced even compared to the overall market bubble.
But it’s a double bubble: the overall market bubble + the Musk fanboy story stock bubble.
Tesla may very well be 11Xs better than the average S&P company right now, but that just means Tesla’s price bubble is that much more inflated once you scrub out all the irrational exuberance.
Let’s run a back-of-the-napkin comparative analysis:
If Tesla traded at the same P/E as Amazon — arguably one of the strongest companies on earth — Tesla’s market cap drops to $178 billion.
If Tesla traded at the same P/E as Volkswagen Group — which includes Audi, Bugatti, Bentley, Lamborghini, Ducati, and Porsche — Tesla’s market cap drops to $25 billion.
If you compare Tesla to Apple, which is fair comparison and a far more rational P/E, Tesla’s market cap drops to $90 billion.
Now pop the overall asset bubble, and Tesla’s true market cap is realistically somewhere less than $50 billion… about a 20th of what it’s trading for right now.
Gamblers in a dangerous time
As a sound investment, $TSLA is one of the worst stock picks in the world.
As a fun gamble, it’s one of the best.
And, just like Bitcoin, small investors are going to lose hundreds of billions of dollars when the price bubble pops.
Because let’s face it: Tesla is a meme stock.
Just look who’s buying shares:
And they’re probably buying most of it on margin.
Either way, Tesla stock is clearly being pumped by unsophisticated investors who haven’t done their due diligence regarding the company’s actual long-term worth.
Nor do they care.
The end result?
Tens of thousands of Tesla speculators will lose their life savings.
In no rational world is Tesla worth $1,000,000,000,000.
But, of course, we don’t live in a rational world anymore.
Because the productive economy is completely dead, the only way to make big money without doing any real work is to play the extraction game, getting in on Ponzi schemes like real estate, the stock market, and cryptocurrency, desperately hoping you can sell at the top before the whole house of cards falls apart.
And it will fall apart.
When it does, there will be riots and protests, there will be suicides, and millions of people will lose their jobs and homes and suffer untold hardship.
As usual, the elites will pick through the wreckage and scoop up cheap assets at firesale prices.
We saw it in 2008, and we will see it again, but on a bigger scale.
The rich will do what they want, and the poor will suffer what they must.
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