Tesla Delusion Syndrome: A Sign Of The Bubble

And Decreasing Market Depth

Tesla has been a darling of the colossal additions of extra money thrown into the financial system by the Federal Reserve and other Central Banks from 2008 onwards. It has now been 16 years of refilling the punch bowl to overflowing and beyond, and price/earnings ratios have expanded greatly, the number of “zombie” companies has increased greatly, and the level of financial rentiership has exploded to the cost of the average citizen. To add insult to injury, Tesla has also been a massive recipient of the public spending trough as it has gorged itself on cheap loans, sales subsidies, production subsidies and even selling EV credits to its hapless competitors. But most of all it benefitted from the near-zero cost of debt for so long and the Federal Reserve and US government’s indefatigable focus on making sure that no real long term recession will ever hit the US.

At last, in the second half of 2022 it looked like the US would start a cycle of economic and financial cleansing with two quarters of economic contraction looking like the beginning of something bigger. But it was not to be as Saviour Biden rode to the rescue with a new massive stimulus including such goodies as Military Industrial Complex giveaways (Ukraine funding), Tesla giveaways (the utterly misnamed Inflation Reduction Act with yet more EV purchase and production incentives) and chip industry subsidies (the CHIPS and Science Act).

Then in early 2023 the Federal Reserve Governor tried out his new “see no inflation, hear no inflation, speak of no inflation” routine, and followed up in May by pumping again and bailing out the fat cats and bank executives from their own stupid decisions (the regional bank crisis).

Then in May 2024 Tesla got an early Christmas present in the shape of a massive tariff wall against Chinese EV competition, the same competition that has been wiping the floor with Tesla for the past year in China. And the Military Industrial Complex got another US$95 billion, couched as “aid” to Ukraine, Israel and Taiwan. While the US politicians make out like bandits through insider trading. Mike Johnson playing the usual “blind them with bullshit” cover for the MIC giveaways.

In the stock market generally the gains have kept shrinking and shrinking into a smaller and smaller number of players, the “magnificent seven” of Apple (US$3.32T market cap, P/E 34), Microsoft (US$3.39T P/E 40) , Alphabet (Google US$2.27T, P/E 29), Amazon (US$2.05T, P/E 56), Nvidia (US$3.06T, P/E 72), Meta (Facebook, US$1.28T, P/E 29), and Tesla (US$0.67T, P/E 59). In the case of Tesla, the P/E is understated due to a massive tax benefit claimed in Q4 2023; its real P/E (stock price to earnings per share ratio) is closer to 200. These seven stocks represent 50% of the market capitalization of the technology-oriented Nasdaq stock index; a level of concentration that usually presages market crashes as less and less stocks drive market gains.

Apart from Nvidia and Tesla, all of these corporations can be characterized as widely exploitative monopolistic enterprizes (e.g. the Amazon “market place” and Apple and Google play stores) while some have benefitted from collusion strategies to crush competition (e.g. Huawei in hand phones and the Parler app) and to restrict third party compatible products and repair services.

In addition they play fast and loose with concepts of consumer data protection. They also do little if anything to support, and in the case of Amazon actively undermine, US manufacturing, productive strength and the welfare or working people. They are merely parasites, many of which are highly embedded within the US Security State and Military Industrial Complex apparatus.

The latest example is the planned forcing of the owners of the wildly successful TikTok to either sell out on the cheap to US investors or shut down, removing both an independent platform for free speech and a competitor to the US big tech platforms.

Nvidia is the stand out as actually benefitting US manufacturing and productive strength, but its products have become the base of a massive “AI” stock market bubble which is very reminiscent of the late 1990s “dot com” bubble. Just as there was a massive overhang of “dark (internet) fibre” and routers after the dot com bubble, there may be a massive overhang of Nvidia processors after the “AI” bubble. Tesla used to be a leader in electric vehicles (EVs) but squandered its early lead and massive government largesse on shiny baubles such as fake solar roof tiles, the Roadster, the Semi-Truck and the specious promise of Full Self Driving and RoboTaxis; while Elon Musk wasted even more time on space rockets, hyperloops, Twitter and more recently silly dreams of dominating AI and robotics. From late 2022 the utterly ridiculous dreams of dominating global EV sales with juicy fat margins started to fall apart, as the share pricefell from US$400 to a low of US$100; a 75% fall. But Musk spun a new tale to continue his Pied Piper Act to the Cult of Tesla (CoT) members, this time about slashing prices to drive “unlimited” “exponential” demand only to smash into the wall of financial reality as Tesla sales stalled and margins collapsed. The Tesla shares which had tripled back to US$300 fell all the way down to US$138; a more than 50% fall!

But then Joker Musk pulled another few rabbits out of hat, the tired old rabbit of Robotaxis and the new ones of AI and robotics (both of which Tesla is laughably behind the competition in). The CoT were exuberant and the forever logic-based short sellers were once again caught off guard as Tesla shares roared back by 75% to US$246! The Tesla roller-coaster is not for the faint of heart, or perhaps also full of stomach! But underneath the surface reality has taken hold, as Tesla EV sales have become ex-growth, contracting on a year-on-year basis in both Q1 and Q2 even with profit-crushing price reductions and massive incentives (such as 5 year zero interest rate financing). In Q3 the EU anti-China EV tariffs will sideswipe Shanghai Model 3 production bound for Europe and Chinese competition in China and Asia as a whole will only intensify; in the former Tesla is already rapidly losing market share while is slashes prices and funds those juicy incentives.

Apart from the “refreshed” Model Y (second half of 2024 in China, 2025 in the US and Europe) Tesla has no new products slated for this year or next; while its competitors release one new model after another while slashing prices. The removal of much of the European EV subsidies has also produced a moribund low growth market, with the added problem of manufacturers such as VW at last getting their EV act together. In the US, car prices are simply too high for cash-strapped consumers and the trend is toward the plug in hybrids (PHEVs) which Tesla does not make. So everything for Tesla is now dependent upon Musk’s reveal of his new shiny bauble, the old/new Robotaxi to be unveiled by the Joker on August 8th. Here is just a reminder of the Joker’s serial lying:

That included the promise of Full Self Driving available in 2017 and Robotaxis by 2020, and landing space ships on Mars in 2022; he makes Elizabeth Holmes look like a pathetic amateur.

For the wider S&P 500 share index as a whole, the P/E ratio is 26.5; very close to where it was prior to the 2000 “dot com” crash and the 2008 Global Financial Crisis (GFC). Bubbles can continue for much longer than anyone can imagine, and the prospect of a rentier-friendly Trump presidency may help continue the bubble well into 2025. But at some time the music stops and expectations meet reality; even with an Nvidia where ever increasing sales and margins are baked into its P/E ratio of 72. Sooner or later demand will stabilize/fall and competitors will pressure margins, as happened to router company Cisco Systems in the 2000s. It crashed from a high of US$82 in March 2000 to a low of US$8 in October 2002, and still has not broken that previous high 24 years later although it has kept successfully operating. The telecom equipment company Nortel is another example, its shares crashing from C$1100 to C$0.185 within 8 years.

I watch Tesla both because it is the poster child of the post-2008 stock bubble and because it so represents the style over substance nature of US capitalism. So different to a Chinese Party-state managed and controlled capitalism that is directed to quietly and consistently create real social value; as in a market dominating EV industry that is crushing the competition, including Tesla. When the Joker’s mystique truly breaks, and he is seen for the serial liar and conman that he is, it will be akin to what American’s call “the fat lady singing”; a precursor of the end of the bubble. There will be many PhD dissertations and books written about the Joker Musk phenomenon in future years. When the rest of the “magnificent 7” break will be when the bubble is truly over, there may be bear market rallies to suck in more losers along the way (as with Tesla) but the trend will more reflect the early 2000s or even the early 1930s. All while Western governments, businesses and consumers are so much more indebted than in those times; perhaps leading to the need for an inflationary crash rather than a deflationary one.

In my current home country of Canada, with its world-beating property bubble and utter lack of an efficient and effective productive sector, the fallout may make the US look relatively fortunate. Especially with the massive wave of refinancing that will take place between the end of 2024 and 2027; 45% of all outstanding mortgages will face an interest rate renewal shock in 2024 and 2025. The low rates of 2019 to 2022 will be exchanged for the much higher current rates (Canadian fixed rate mortgages tend to renew and reset every 5 years). In addition, a lot of the variable rate mortgages maintain a set payment amount that created sizeable negative amortizations that will exacerbate the renewal payment shock. Reductions in immigration due to government policy and economic and financial realities will then only add to the debacle.

All the while the media will keep barefacedly lying to you until they spin to a different story, and memory-hole the previous one:

Or perhaps they just can’t continue with the old story, here is the Canadian Broadcasting Company saying that Joe Biden so obviously has dementia without saying it for 13 minutes:

And let’s remember that Jeff Bezos owns The Washington Post and that the big tech companies can destroy any other media company with a quick change to their algorithms. We live in interesting times as they say, but much of them may not be televised or covered in the news media and dominant media platforms.