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Anyone who has paid attention to it knows that EV stocks have been on a serious roll. Industry pioneer Tesla has seen its stock price skyrocket by well over 700% in the past 12 months, and recently traded at a rate 1,000 times its earnings.
Many other companies have gotten ahead in Tesla’s wake, and bubble talk is rife. A comedic sign of the out-of-control frenzy: Shares of a company called Signal Advance soared 11,000% after Elon Musk tweeted “use Signal” to his 42 million subscribers. News flash, folks: Elon was talking about a completely independent company – a messaging platform called Signal.
“The renewable energy bubble is probably the dumbest one I’ve seen in my career,” wrote Charles Gave of financial management firm Gavekal last month (and the green tech sector has climbed much higher since his comment ).
However, as Greg Ip wrote in a recent Wall Street Journal article, stupid doesn’t always mean useless. We can think of stock market bubbles as destructive forces (and many are, like the 2008 real estate crisis). Paradoxically, however, a bubble can also have a socially beneficial ray of hope. As Mr. Ip sees it, even though investors once regret paying so much for TSLA, they have done the planet a service. “Their enthusiasm has enabled the company to raise enough money to stay afloat until it can profitably produce mass-produced electric cars, while accelerating the deployment of other manufacturers.
As regular readers of this column are well aware, Tesla has achieved a lot of incredible things over the past year – perhaps most amazing of all is that it has finally succeeded in motivating mainstream automakers to take their own EV programs seriously. This was all made possible by the Californian automaker’s soaring stock price, and even if TSLA collapsed tomorrow, it wouldn’t reverse the positive changes the company has implemented.
Above: Why investors are investing more money than ever in green energy (Source: Wall Street Journal)
But how can a bubble be a good thing? Wouldn’t it be better if markets were truly efficient, allocating as much capital to each company as their realistic profits and growth prospects warrant? Not necessarily. As Mr Ip explains, “Private markets usually do not provide enough incentive for risky innovation … a bubble can overcome this market failure as investors inject capital into countless new companies they hope to be the next Microsoft or Amgen. [or Tesla]. Even if most of these companies fail, they are pushing the technological frontier. “
During the dot-com boom of the late 1990s, speculators (let’s not call them investors) apparently threw money at any business with a website. Many of these startups were losing money, and some were never able to explain exactly what their products or services were doing, but no one cared until the music stopped. Yes, some of that money was wasted on elaborate press events and decadent launch parties (I know this, as I enjoyed attending several of these events myself). However, it also funded more productive efforts, as Ip points out. For example, “mania has funded a glut of fiber optics [cable] which has lowered the price of bandwidth enough to bankrupt many telecommunications companies while allowing countless new companies to emerge. Among the recipients of the money lying around was a young company called PayPal, and $ 180 million of that currency found its way into the pockets of a young entrepreneur named Elon Musk, who used it to fund. SpaceX and Tesla.
Like internet platforms, electric vehicles and other green technologies are subject to network effects, tipping points and learning curves such as Moore’s famous law. The result is, as Ip explains, that some technologies and companies that are not commercially viable now may be in the future if they can secure the funding needed to expand. Government funding for basic research helps develop nascent technologies, and venture capitalists fund innovative startups to get started, but sometimes a midsize business that has progressed beyond the start-up phase needs a boost. an extra inch to transition to a mass. -market manufacturer.
When Tesla was a losing company, it was vulnerable to the vicissitudes of the stock market (and a constant flow of FUD generated by short sellers, flat-earthers, and click-bait sellers). Becoming profitable has allowed him to focus more on his long-term goals, and more recently the huge sums of money that have been poured into his stock have allowed him to launch some extremely ambitious projects. Most of these projects (the Gigafactories, the new 4680 battery cells, the massive casting machines that will form the sub-frames of future vehicles) are designed to reduce costs and improve quality, so they will bring benefits. financial to Tesla and its customers for years to come, no matter what happens on the stock market.
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Written By: Charles Morris; Source: Wall Street Journal
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