Elon Musk Finally Stopped Blowing It
Almost two years ago, I published an open letter to Tesla CEO Elon Musk on Banyan Hill’s website.
I’m fascinated by electric vehicles (EVs). I believe they’re the most important transportation upgrade in 100 years.
I’ve followed Tesla’s story from the start. I’ve invested in Musk’s company in the past as well as other horses in the race, such as the now-revitalized carmaker Fisker and battery companies such as A123.
The EV space has made great strides over the past decade … so I was dismayed by the direction Musk was steering the company as the finish line was within sight.
At the time, Musk was totally blowing it. He was overly focused on his critics and not on the revolutionary EV that was ready to take the world by storm.
The stock price languished for three years. Investors were getting anxious about the company’s increasing debt levels.
Meanwhile, Elon was tweeting about taking the company private at $420, a higher valuation to burn the short sellers.
Unfortunately, Musk was only joking.
The U.S. Securities and Exchange Commission sued him for securities fraud. He settled for $40 million and stepped down from his chairman’s seat.
As it turns out, it was actually fortunate that Musk was only joking.
At a recent price of $1,680, shares have quadrupled over his sarcastic buyout price.
He would have personally left a cool $40 billion on the table if he sold back then. And investors would have missed out on $200 billion in market gains.
In the past two years, the tide has shifted for Tesla.
It has outsold projections, even during the coronavirus pandemic.
It went from 2% of the EV market in China to 21% today.
It’s inching ever so closer to fully autonomous driving, and the company boasts an unheard of 25% profit margin on vehicle sales.
After the stock’s 250% rise this year, TSLA short sellers have largely disappeared. They’ve eaten enough crow to fill the 87-cubic-foot interior of a Model X.
Tesla’s historic run has tipped off a rush to invest in EVs. It shows signs of a classic bubble, with a cadre of lesser-known companies commanding historic valuations.
But before I discuss some of the high-flying valuations of Tesla’s competitors, I want to point out what the EV bubble has in common with previous manias.
Tech Triggers Throughout History
Every bubble starts with a technology trigger. This is typically a breakthrough technology that proposes to change our way of doing things … or lead to new ways of doing things altogether.
The internet is a great example of a tech trigger.
There’s usually one company leading the way with this new technology.
Investors drive the price higher, and that causes more people to want to hear the story. This is usually followed by a wave of entrants in the same field looking to capitalize on investor excitement.
AOL paved the way for the dot-com bubble with its “You’ve got mail!” catchphrase and soaring stock price. Any company that attached “dot-com” to their corporate name skyrocketed in value during the mania.
In a similar fashion, the cryptocurrency bubble was triggered by bitcoin’s meteoric rise.
The excitement around a new way to send digital value across the internet in 2017 led to crypto mania. Thousands of cryptocurrencies appeared and saw dramatic price gains.
And just like dot-com, public companies pivoted their strategy to blockchain.
The Long Island Iced Tea company stopped making sweetened beverages and started mining bitcoin, changing its name to the Long Blockchain.
Long Blockchain’s stock tripled from $2 to $6 in a week. But shares can now be had for the price of $0.08, almost equal to the refund deposit on its now-defunct beverage business.
Here’s Why Everyone’s Excited About EVs
Today’s EV bubble has similar characteristics as its predecessors. To paraphrase Mark Twain: “History never repeats itself, but it does rhyme.”
Tesla is the technology trigger. It produces an EV that will soon be cheaper to produce than your traditional gas guzzler.
That’s thanks to increasing efficiencies and decreasing costs of lithium-ion batteries over the past decade.
Bloomberg expects sales of EVs to grow 1,391% in the next decade, from $1.7 billion in 2020 to $25.8 billion in 2030.
It’s clear why everyone’s excited about EVs:
Tesla’s 250% rise this year has made it the highest-valued car company at $273 billion. It soared past Toyota’s $200 billion valuation.
But it’s not the only American EV maker trying to establish a foothold in the oncoming EV rush.
Here are three other EV makers to watch as the bubble grows.
Nikola is a Phoenix-based designer and manufacturer of hybrid trucks. It’s named after Nikola Tesla, the same inventor of the alternating current electricity system that Tesla based its name on.
The company is planning to produce both pickup and long-haul trucks using fuel cells instead of batteries. Fuel cells haven’t been used in trucks yet, but Nikola intends to change that.
The company started publicly trading in June after it merged with a special-purpose acquisition vehicle.
NKLA commands a $20 billion market cap and won’t record any revenue this year. Analysts expect the company to reporting $5 billion in revenues in 2025, without profitability.
Shares of Workhorse have soared almost 500% this year.
Investors are buzzing about its lineup of electric-delivery vans, which feature medium-range batteries for parcel delivery.
With a surge in e-commerce this year due to the coronavirus, it’s clear to see why investors are excited about the potential for Workhorse’s vehicles to solve the last-mile problem of delivering your Amazon Prime packages to your doorstep.
In comparison to Nikola, the company looks cheap at a $1.1 billion market cap with revenues of $22 million expected this year.
Analysts expect that revenue number to grow to $1.6 billion by 2025 and earn $1.70 a share.
Rivian Automotive LLC
Lastly, Rivian is a private company that has plans for an electric pickup truck and SUV.
This company has been around for over a decade, but only recently started gaining traction with investors.
Rivian has raised $5.3 billion since the start of 2019, with both Ford and Amazon as strategic investors. It also signed a deal for 100,000 electric-delivery vans with the e-commerce giant.
Rivian was set to start production this year at its plant in Illinois, but now expects delays due to the coronavirus. As it’s still a private company, there are no revenue projections yet from Wall Street.
Watch Out, Elon Musk — You’ve Got Competition Now
All of these stocks have the earmarks of bubble investments.
But it’s also true that, as economist John Maynard Keynes once said: “The market can stay irrational longer than you can stay solvent.”
Investors are just now waking up to the EV future because Elon Musk finally stopped blowing it.
EVs are a huge tipping point trend I’ve recommended my Automatic Fortunes readers pay attention to.
And since I see EVs forming a bubble, I recommended my current subscribers close a massive 540% gain in Tesla — in just under a year!
This is only the tip of the gains that we’ll see over the coming year. To learn how you can join my elite service, click here.
Editor, Automatic Fortunes
My career on Wall Street started while I was in college. I spent a summer interning for Merrill Lynch in the middle of the ‘90s bull market. I was fascinated with trading, and as a result, after college, I joined Salomon Brothers in the famed mortgage bond trading department. Later, I spent time at Citigroup working with credit derivatives. Eventually, I needed to walk away from the excess of Wall Street. That’s when I joined Banyan Hill in 2017. Now I help readers get ahead of the market and build their retirements.