As readers of this blog know, we have consistently opined that at prices exceeding $350 Tesla is significantly overvalued. Therefore, Cornell Capital has pursued an investment strategy of writing call options with a strike price of 350 when Tesla stock reaches that level. The strategy has worked well over the years and we continue to pursue it, but last weekend the Los Angeles auto show gave us pause. We have marveled in previous posts at the lack of exciting, “sexy,” electric car offerings by major traditional manufacturers. The L.A. show was jarring in that respect. Teslas small exhibit was packed, as was that of Rivian, an exciting new electric startup. However, the rest of the show was an electric desert. Porsche did not even have a Taycan on display. As we went from BMW, to Toyota, to Daimler, to GM, to Ford and so on the word for electric was 2020, if then. The sole exception was Jaguar with their iPace.
As we have been driving Teslas for almost six years at Cornell Capital, it is aggravating to not have more real choice in electric cars by now. But as writers of Tesla options, our concern is graver. Why is the competition letting Tesla get such a large head start? It makes sense that they may want to wade into the electric world slowly, given all the complicated political issues including the future of government subsidies. However, the actual response has been more glacial than just slow.
There is also the issue of “learning by doing.” Economic theory teaches that way you get better at making electric cars is by making them, not by talking about them, drawing mock-ups, or even producing demos. There are innumerable little details that Teslas competitors will not get right until they are actually producing, selling and servicing electric cars. Those who wait too long may be unable to keep pace in the next decade.
In short, we fear that Tesla may have more market power than we have modeled. If consumers begin to think of Tesla as synonymous with electric cars, then the company may be worth more than we have thought. A price of $350 still appears to us to be rich, but less so than we thought before the show.