Though I am not an expert on stock prices, least of all on the price of Tesla stock, I am going to make a prediction. And with the passage of time, I’ll either pull out this Thought Tool and wave it proudly to remind you of what I wrote, or else I’ll eventually bury it and hope nobody remembers it. Meanwhile, I’ll provide some information so you can make up your own mind.
What makes me write about Tesla stock is not only that at the start of 2017 it was about $200 a share and by mid-year it was nearly $400 (though it has now sunk back to about $300). I am interested in it for a more fundamental reason. You see, even at $200 it made no sense to me. Tesla’s market capitalization, the value the market places upon the company, $60 billion, is now about the same as General Motors or even a bit more. However, last year Tesla sold about 75,000 cars while General Motors sold about ten million! Although Tesla took in about $7 billion in sales revenue, overall it lost over $600 million. Meanwhile, good old GM took in over $150 billion in sales on which it made a profit of nearly $10 billion. Yet, the price of General Motors stock has fluctuated between $35 and $45 this year. Doesn’t something seem off?
In all fairness, I must tell you that a dear friend in Los Angeles recently took Susan and me for a drive in his Tesla. I have owned some wonderful automobiles and have driven in many other impressive, cutting edge cars, but I was blown away. The acceleration was more like a Lamborghini than like a Prius. The technological virtuosity was overwhelming. The ‘cool-factor’ was off the scale. Still, even with government subsidies (which won’t last forever) it remains a very expensive car.
Regardless, how can a company which loses money selling a handful of cars be worth more than a company that makes $10 billion selling millions of cars? How can a stock that pays no dividend be worth about ten times more than a stock that has been paying a steady yield for decades? One possible answer to these questions is the founder of Tesla, Elon Musk. Perhaps investors believe that Musk can do to General Motors what Steve Jobs of Apple’s iPhone did to cell phone leader, Nokia, ten years ago.
In order to discover whether Elon Musk is a good enough explanation for Tesla’s valuation, we need to examine some ancient Jewish wisdom.
At the start of the sixth chapter of I Kings, Solomon begins to build the temple.
And it was…in the fourth year of Solomon’s reign over Israel…
he began to build the house of the Lord.
(I Kings 6:1)
At the end of chapter seven, Solomon completes it.
And so was ended all the work that king Solomon made for the house of the Lord…
(I Kings 7:51)
It would have been a rather straightforward two-chapter-long construction story were it not for two anomalies; two incongruous insertions that interrupt the construction narrative.
(i) God warns that He will only inhabit this Temple and reside among the people of Israel if they faithfully adhere to His Commandments (I Kings 6: 11-13)
(ii) The Temple construction story is interrupted by twelve verses describing the construction of Solomon’s personal residence in terms that sound very similar to the building of the Temple. (I Kings 7:1-12)
These two interruptions serve to teach two invaluable lessons for each of us.
Ancient Jewish wisdom explains that every successful person and every successful enterprise needs a ‘story’. It needs a purpose for existing outside of itself. One of the questions routinely asked of presidential candidates is, “Why do you want to become president?” Back in 1979, Ted Kennedy sank his candidacy by being quite incapable of answering that question. Ikea, the Swedish furniture giant doesn’t say that its purpose is to give thousands of people jobs or to provide economical quality furniture to millions. Instead, its mission is, “To create a better everyday life for the many people.” God reminds Solomon that the purpose of the Temple is not just to build a gloriously impressive structure. The ‘story’ behind the construction is for God to reside among the people.
The second lesson is that the builder must feel comfortably linked to his creation. Solomon didn’t live on a houseboat on the Sea of Galilee or in a cliff dwelling in the Negev Desert. He didn’t build his own home of experimental mud or imported bamboo. He focused on building a Temple of wood, stone, and metals. His home was also built of the same substances, close to the Temple. The work of the Temple progressed well partially because Solomon was also building his own home. He was integrated with his projects.
Elon Musk and Tesla certainly have a story. The story is the vision of one day owning the electrical vehicle industry, the industry that builds the batteries that drive those vehicles and the photo-voltaic cells that charge those batteries. A comprehensive electrical solution to mankind’s need for transport. Nobody knows if it’s a plausible story or a fairy tale.
But how about the second lesson? The creator must feel comfortably linked to his creation. Here perhaps Elon Musk doesn’t cut it. He’s not focused exclusively on Tesla. He’s building space rockets. He’s building artificial intelligence machines and robots. He’s building a tunnel boring company. And he personally drives (and crashes) many types of cars other than Teslas. Furthermore, he is scared of automation.
Musk believes (and has stated) that the threat from mechanical robots gone wild is so real that only strict government regulation can save humanity from our own creations. Yet, this man is building a car that is equipped to drive itself. Even now, Elon Musk wants you to take your hands off the steering wheel of your new Tesla as you barrel down the freeway. This is not a man comfortably integrated with his own creation.
So, my personal prediction, for what it’s worth, is that without Elon Musk, Tesla fundamentals do not support the current valuation of the company. And I suspect that Elon Musk is neither wise enough nor integrated enough to carry Tesla safely and profitably into the future. Obviously many very smart investors disagree with my view which is why in the final analysis, all must decide for themselves.
Yet, the timeless truths of ancient Jewish wisdom have stood the test of time, so, though I wish Tesla no harm, I think that in time to come, I may be brandishing this Thought Tool and saying, “Remember, you heard it here first.”
Scripture is not a history book; it is a blueprint for life. It shouldn’t surprise you that economic and business principles jump off the pages any more than it should surprise you that there are messages for organizing society or structuring family life.