The underlying business is slipping, yet the line keeps going up
Right now is a weird time to be Tesla $TSLA. On the one hand, sales are flagging, the company’s newest vehicle is an absolute mess, and its flagship software only works for an elite few. On the other, the stock keeps climbing, with Tesla’s market cap now well over $800 billion. As it turns out, we have a word for for stocks whose share price has no meaningful relation with the company’s underlying financials: Meme stocks.
Investor Bill Gross tweeted earlier this week that Tesla had begun acting like meme stocks like Chewy. Gross is absolutely correct here, that Tesla’s share price is unmoored from the company’s fundamentals, but he’s wrong about one thing: This isn’t new.
First off, what is a meme stock? Traditionally, stocks are valued and traded based on what’s going on with the company they represent — if you think more people will be buying Coke in two years than are right now, you throw your cash in for a few shares and reap the benefits when the company’s income (and valuation) improve. But in 2020, the Gamestop trading frenzy introduced us to the meme stock, where traders almost entirely ignore the company represented by those shares. The stock itself is a standalone asset to be bought and sold.
With Gamestop, this eventually wrapped back around into something that’s part cult, part get-rich-quick scheme, part righteous holy war against investors, and part cyberpunk cautionary tale. With Tesla, we’re not quite there yet, but a mass of retail investors who’ve bought into Elon Musk’s cult of personality mean it’s never off the table.
If you take a look at Tesla’s all-time stock price, it sorts neatly into eras. During the early Roadster era, just after the company went public in 2010, Tesla traded around $2/share. After the Model S caught on, that number jumped to the $10-15 range, which then jumped into the low $20s after the introduction of the Model X $TWTR and Model 3. When deliveries began for the Model Y, in early 2020, share prices doubled again to the mid-$40 range.
A year and a half later, in October of 2021, the stock price hit $909.68.
Since then, the company has split its stock, increasing the number of shares on the market by devaluing each individual share to keep the market cap consistent. And, despite some peaks and valleys, consistent it’s remained — that $900-plus share price came with a market cap of $860 billion, not far off from today’s $822.69 billion.
Tesla, by share price, is the most valuable automaker in the world. Its market cap is higher than the next nine most valuable automakers — Toyota $TM, BYD, Ferrari $RACE, Mercedes-Benz, Porsche, BMW, Volkswagen, Stellantis $STLA, and General Motors $GM — combined. Long before Tesla outsold the legacy competitors in any metric, investors valued the company far higher. For years now, Tesla’s share price has been entirely unmoored from the company’s actual business — a meme stock.
Bill Gross is right in his assessment. Tesla’s share price has nothing to do with its actual profits or function as a car business. He’s just late to the game — Tesla’s been like this for quite some time. And, with Musk remaining at the ship’s helm, it’s unlikely to change any time soon.
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