Identity politics has morphed into identity investing: the newest breed of traders buy stocks simply because they are fans. This is one explanation offered for the continuing rise of Tesla despite the incresingly apparent evidence that its founder and big boss is certifiably insane and the fact that the electric car maker runs is car making operation at a loss and only stays in business by selling carbonm credits handed out by the US Government and various state legislatures, including the global capital of crazy, California, New York state, Illinois and every other corupt, Democrat controlled shit hole.
That Elon Musk has recently anointed himself the Technoking of
Tesla while rebranding his chief financial officer as “Master of Coin,” the title held by Littlefinger, Tyrion Lannister and other characters in Game Of Thrones
is not a joke. It’s not even (or not just) an attention-seeking stunt.
There’s much more to it than that. However Musk's move has triggered the latest wave of enthosiasm among electric car nerds and tech cult members for buying shares in Musk's great bubble.
Some have suggested Musk’s idiotic antics over job titles are a ploy to divert attention from the many downsides of Tesla’s performance, the upsides of which exist only in the minds of Musk and the millions of tech fanboys (and a few fangirls,) who believe every bit of hyperbole that spills from his mouth, viz Musk's splashy announcement last month about a $1.5bn bet on
Bitcoin which came around the same time as regulators in China, its fastest
growth market, were flagging safety and quality issues but triggered another uptick in the price of Tesla stock on financial markets when the news from China should have caused a sharp drop as China is the car company's biggest market.
The latest whacky disclosure coincides with a report from Barclays Investment Bank that shows Tesla’s
share of the electric car market in Europe dropped from roughly a third
at the end of 2019 to 10pc at the beginning of this year. Tesla is also
having problems both technical and legal, with its “self-driving” feature, which, pardon me
if I’m being a bit too technical here, when I say that it is effing uselesss. The legal issues mainly concern the families of tesla owners killed when the self-driving technology failed with fatal consequences.
Maybe there’s a diversionary element to it but this kind of tactic on planet Musk is a strategy. You could call it
corporate populism. He's telling the faithful what they want to hear.
His Techno Highness regularly demonstrates that he has less than zero interest in governance norms, customer satisfaction or in the traditional conduits of financial information - like bank analysts or the media - instead playing to the crowd through social media (and subversive SEC filings).
It works because the crowd is big enough to make a difference and gullible enough to fall for it again and again. The number of retail investors, the majority of whom are under the age of 34, doubled in 2020, the generation that does not understand there's a big difference between researching something and Googling it. The significance of this trend towards young, independent invetors buying and selling small quantities of stock has only recently become apparent. Encouraged by social media campaigns particularly on the Reddit site, retail investors have accounted for a third of all US stock market trading, meaning they collectively yield greater sway than every single hedge fund and mutual fund in the country combined.
Many of these investors aren’t doing rigorous financial analysis. If they were, they’d be worried that Tesla has a p/e ratio ( a company’s share price expressed as a multiple of how much money it actually makes) of 180x. This compares to an average among US equities of 19x, UK, Germany and France about the same, according to analysis by Schroders.
At the end of January Tesla was worth $752bn, placing it in the top
10 most valuable companies in the world. In fact it now represents over a
third of the market value of the entire global car industry. This is a vast overvaluation for a company run by a nutter that is in reality a niche car maker.
“Such an immense market capitalisation makes sense only if the expectation is that Tesla will come to dominate the entire auto industry, not just the [electric vehicle] market,” says Rob Arnott of Research Affiliates. “Such an achievement requires that both Tesla’s brand and technology become so dominant that the company can earn profit margins that exceed those of Ferrari on a level of production exceeding that of Toyota.”
That ought to sound a bit far fetched even to Musk's biggest fan, it certainly does to one of his biggest rivals Akio Toyoda, President of Toyota, which is memory serves me well vies with Ford and Volkswagen for the unofficial title of world'd biggest car maker. It would clearly be impossible for Tesla to dominate the car
industry in such a way while its rivals also continue to see their share prices rise whenever a new EV is announced. And yet that is
what the soaring share prices of other EV specialists over the past year
and the relatively stable share prices of traditional car markers
currently implies. In other words, investors appear to believe there
will be no losers from this ultra-competitive race to go electric. In the future there will be no losrs only runners up! How very woke!
This irrational obsession with electric cars is a classic example of what the financial trading community call the “big market delusion”, which usually happens when a new market is created or an old market disrupted through innovation. All the different players get valued as if everyone will win because nobody knows how things will play out. The cannabis market where shares in firms that sell cannabis based products in US states where the drug has been legalised is another example.
Of course, Musk would argue that Tesla is not just another carmaker but a software-enabled business that will overturn the old economics of the industry before turning its sights on robotaxis, self-driving trucks, battery technology and more. Indeed, his new job title kind of makes exactly this point.
But the short-sellers in the established sector of the market who are betting on Tesla stock prices falling dramatically aren’t convinced. It’s not that they think Tesla is a bad investment at the right price. Clearly the future is electric with western governments calling time on the internal combustion engine. But the sceptics believe that the company’s share price has gone way beyond a basic appreciation of those facts. And their logic is sound. There’s only one problem.
Tesla doesn’t have ordinary consumers and shareholders but fans. And, as any follower of English football will tell you, the well from which a true fan draws their misplaced optimism is almost fathomless. But the Tesla bubble is something different again. Apart from being fans of Tesla, fans of Technology and fans of fantasy fiction, many of the new breed of investor understand that they are behaving irrationally while co-ordinating campaigns on social media and entreating each other to hold onto stocks with “diamond hands” even in the face of overwhelming evidence they should sell.
The traditional investor was looking for a reasonable risk-adjusted
return in order to fund their retirement. The new breed rallies to a
banner emblazoned with the acronym “YOLO” – you only live once. They are
not investing in Tesla because of its p/e ratio or in the hope that sky high share valuations go interstellar; they are investing
because of who they are and how it makes them feel. They are investing because Greta Thunberg. They are not investing in business but in causes, to sen a politicical message to ......... we're not sure who.
Identity politics has morphed into identity investing. And there are signs this new brand of shareholder won’t be put off by the next big market correction as their predecessors were when the dotcom bubble burst.
A recent survey of US retail investors conducted by Deutsche Bank found that respondents are planning to invest over a third of any stimulus cheque they receive from the Government in equities (is that a money-laden helicopter I hear?) and will treat any sell-off as a buying opportunity.
The very fact that Deutsche Bank conducted such a survey clearly demonstrates that traditional market participants are starting to realise they need to figure out a way of analysing the phenomenon and incorporating it into their own models.
The default assumption must remain that economic gravity will reassert itself in the end. But it may take a lot longer than we mere technosubjects had supposed.
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