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Opinion: Why has it become bullish to be bearish on Tesla?

(Photo: Shutterstock)

On the one hand, you can say the only way to make a vision happen is to possess the vision in the first place. On the other, a vision is just a vision unless you can make it happen. We can’t all make visions reality. From all green e-vehicles to the hyperloop to the rocket-to-Mars, one thing we should all be hoping for is that Elon Musk’s visions become reality.

If Musk realizes his ambitious visions, we will be living in a higher-level world. We should want Tesla to succeed. Tesla’s overvalued stock or not, seems it’s become a thing to get bearish on Musk.

Why is everyone hating?

Sure, they’ve never turned a profit and their market share price is volatile. Should we think highly of any company that isn’t profitable? Maybe Amazon and Tesla, who are trending toward being unprofitable for years, are the outliers for how to make big, disruptive plays in the market. It’s not a model for most, but maybe they will be outliers.

Why? The best price theorists will tell you: the true value of a company is not its market share. It’s certainly not just its revenue. It’s one essential, timeless thing: profitability.

Maybe Tesla should create a product that has important perceived value to the customers who will buy their cars, rather than the belief of stockholders. Offering true value is a necessary but by no means sufficient condition for success. Far too often managers claim that if you make a good product, it will sell itself. That is not a good operating procedure. Profitability ultimately comes down to price, as Hermann Simon’s Confessions of a Pricing Man will tell you.

As Simon reminds us, in economic terms, the most important role price plays is in creating a balance between supply and demand. Ultimately, profit is the only valid metric for guiding a company, and there are only three ways to influence profit: price, volume, and cost. Of these three factors, price get the least attention, but has the greatest impact. 

The price a customer is willing to pay, and therefore the price a company can achieve, is always a reflection of the perceived value of the product or service in the customer’s eyes. Herbert A. Simon (Nobel Prize, 1978) coined the term “satisficing” to describe people’s limited capacity to absorb and process information. People don’t strive to maximize their profit and utility. Instead, they content themselves with a “satisfactory” outcome. It boils down to this: you need to know what your demand curve looks like, the more precisely, the better.

Often the value of a product depends on how quickly it becomes available or how quickly a customer can access it. But other than the prestige factor–being an elite-insider-early-adopter–it’s not clear what the total ascribed value of a given Tesla car is.

Is Musk overextended? That’s certainly an argument. Then again, aren’t most startup CEOs overextended? Workhorse, who actually is hitting the market before anyone else with an all-electric, e-truck this coming year, is juggling all kinds of things focused mainly on the battery.

Maybe also Musk is simply a victim of his own making: He’s got no one to blame but himself for making big promises that end up becoming hard to deliver. In that sense, he’s more over-reaching than overextended. Rival Nikola certainly seems to think so. They went so far as to call his claims about the battery’s efficiency and power “misleading shareholders” and “fraud.” 

When the Tesla Semi hits the road in late 2019, as Musk promised a month and a half ago, it’s going to have a 500-mile range, a slew of new safety features, and a guarantee that lasts for a million miles. A previous Reuters report had claimed the truck would only get around 200 to 300 miles per charge.

“We look forward to Tesla’s fleet customers reporting their numbers from road testing,” Nikola CEO, Trevor Milton said. Such an understatement could not be more true. We all share the anticipation.

While Tesla also happens to be building the world’s largest battery production system in the world, Toyota just announced its partnership with Panasonic, and Thor Trucks announced its in-house business strategy.

In other words, there’s a lot going on. You pretty much accept being overextended if you enter the EV fray. You have to be if you’re also to possess the vision and the power to make it happen.

We should want them to succeed. Now, can someone get in there and help their production efficiencies? Anyone from Toyota available?

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Chad Prevost

Chad is radio host and broadcast media specialist for FreightWaves.

One Comment

  1. Price, volume and cost are not static independent entities. As Tony Seba will present at the Transparency event, the cost curves for energy storage and creation, intelligence tech and EV components/supply chain are rapidly dropping into the mass market disruption spectrum as we watch. Bezos demonstrated significant cash burn and now the retail space is now forced to accept the "revolution". Musk is simply skating to where the puck is going to be…and creating "haters" in the process. History has told this story too many times for it to be written as a fail this early in the game – imho.

  2. Answer: Um, because Musk is kind of a dick and thinks everyone should just do what he says.