If you have followed this blog for the last couple of years, you have heard me harp on how difficult it was to reconcile Tesla’s market price with fundamental value. Tesla kept sailing along at a market price of abour $350 despite all the issues I stressed which included: the company’s lack of experience with mass market production and service, no proprietary technology, numerous successful competitors with decades of experience, the need to grow rapidly while maintaining margins, the need to raise more capital, and so on.
For years, none of this seemed to matter and then it did. In a space of about two weeks Tesla suddenly fell to $250 on no major fundamental news – no revelations about the Model 3, no sales data for the S and X, no admission that more capital would have to be raised, no major introductions of new cars by competitors. Suddenly confidence just seemed to sag. This is what I find so interesting and frustrating about companies whose values are based on optimistic projections without a reasonable tie to fundamentals. They can sail along for years, causing many shorts to give up and cover, and then in a flash sentiment changes and the price drops. It will be interesting to see how low Tesla can go. Even a price of $250 is difficult to justify from a discounted cash flow perspective. If people stop believing in the magic of Elon Musk $150 is a real possibility.