David Einhorn says Tesla is a bubble stock -- but it's always been that way

Greenlight Capital’s David Einhorn hasn’t minced words about Tesla: he thinks it’s a bubble stock, wildly overvalued with a $US50-billion-ish market cap and share appreciation of 50% for the beginning of 2017.

“‘For the time being, investors remain hypnotized by Tesla’s CEO,'” Einhorn said Wednesday in a conference call,” Bloomberg reported. “‘We are sceptical that the company will be able to mass market its Model 3 at volumes
and margins that justify the current valuation.'”

Obviously, there’s no shortage of investor enthusiasm around Tesla as the company prepares to report first-quarter earnings after the bell on Wednesday. But there’s also no shortage of scepticism — and sceptics such as Einhorn have been more than happy to trot out their case.

But they’re overlooking an important feature of Tesla’s entire history, both before and after the carmaker staged an IPO in 2010: Tesla has always been a bubble company.

The forever bubble

Tesla was a bubble company when it was founded in 2003 with the idea of reviving the moribund electric car business. It was a bubble company several years later when Elon Musk took his PayPal winnings and bought in. It was a bubble when it IPO’d in 2010 and was selling only the completely impractical two-seat Roadster. The $US50-billion market cap is just the latest bubbly development.

A bubble is defined by irrational investor enthusiasm, which in turn inspires the dumb money to rush in. Or to put it more charitably, to attract investors with the fattest appetites for risk.

This has been Tesla’s mojo since the get-go. For over a decade, the company has consistently lived on the edge. Even in 2017, there’s barely enough money in the bank — a few billion — to keep the lights on for a year.

Einhorn says the bubble will pop for Tesla, but the Tesla perma-bubble has already “popped” many times. The stock surges and collapses with regularity. Anyone buying in now with shares above $US300 needs to look at a chart: a predictable future plunge could take the stock to $US150 and erase tens of billions on paper wealth.

So yes, investors are hypnotized by Musk. But they’re been happy to be hypnotized before, and they will be again.

This column does not necessarily reflect the opinion of Business Insider.

Get the latest Tesla stock price here.

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