The market cap of Tesla (NASDAQ:TSLA) left rationality behind long ago. That’s not necessarily a bad thing for investors.
Nvidia (NASDAQ:NVDA) has a ridiculous market cap but I still own some. Not as much as before, but some. Amazon (NASDAQ:AMZN) was ridiculous at 10 times revenue, but it was a good buy nonetheless. I won’t even argue (much) about Microsoft (NASDAQ:MSFT) at nearly 40 times earnings. I’m not buying more, but I’m keeping what I have.
Then there’s Tesla. You’re paying 47 times earnings and six times revenue for a car company? That’s not growing?
The Cult of Tesla
Dan Ives of Wedbush, the analyst who dresses like sportscaster Lindsay Nelson and talks like investing guru Cathie Wood, speaks for the Tesla cult.
He loves CEO Elon Musk the way Imelda Marcos loved shoes. Tesla’s market cap is currently $572 billion, but Ives thinks $1 trillion is “just the beginning.”
He insists Tesla’s “RoboTaxi” is underplayed, and that its AI ambitions can all be realized, sooner than anyone thinks. Tesla will unveil its RoboTaxi on Aug. 8, promising to earn Tesla owners extra revenue by turning their cars into an Uber (NASDAQ:UBER). Judging by its stock, Uber isn’t scared. It’s up 20% this year.
You’ve seen Musk’s Full Self Driving promises more than your favorite episode of Friends. He first started making the claim in 2016. Since then, it has always been just a year away.
The problem is that while robot cars can account for other robots, as Alphabet’s (NASDAQ:GOOGL)(NASDAQ:GOOG) Waymo has demonstrated, they can’t account for people. The number of U.S. traffic deaths has been bouncing between 40,000-50,000 for 60 years, despite a steady increase in safety features.
We’re dangerous. Well, I’m not but you are.
Musky AI
Then there’s artificial intelligence (AI). Ives puts a great stake in Musk’s promises about AI.
But it’s not Tesla that’s doing Musk’s AI. Musk moved $500 million worth of Nvidia chips destined for Tesla to xAI, which he owns entirely. This was right before he convinced Vanguard, and thus his shareholders, to support a 2018 stock grant that guarantees him 25% control. He says that’s necessary for him to stay interested. But how interested is he if Tesla orders are going somewhere else on his say-so?
Then there’s GrokAI itself, available to premium users of Musk’s X. Early reviews are good, but beyond the cost of the chips powering it, where will it get the electricity? Texas, where his data center is located, has the worst electric grid in the nation. ERCOT does not connect to other American electric grids. A single Nvidia Hopper chip takes 1,000 watts of power. Musk says he’ll have hundreds of thousands.
Even assuming he can get the electricity, how much does Grok have to charge users to make a profit? We’re all accustomed to free internet services. Most current AIs, like Alphabet’s Gemini, are still free. Are people around the world going to pay several dollars for each Internet query they make with a chatbot? If not, how does Tesla pay its energy bills?
The Bottom Line
Tesla is a car company. It is a company that makes cars. That’s where its money comes from.
In late June Tesla had 16,000 cars in inventory around the world. They’re not getting more valuable in parking lots. They could be moved at some price but what price?
Musk has rejected the idea of a cheap car, something China is grabbing with both hands. He claims to be making Tesla a tech company, but he’s hijacking the tech for his own startup.
Musk may become the world’s first trillionaire. He may become King of the World. But you won’t get a taste of it investing in his car company.
As of this writing, Dana Blankenhorn had a LONG position in NVDA, MSFT, and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.