Tesla's Valuation:A Risky Bet for Investors?

Tesla’s stock price, $Tesla Motors(TSLA)$ has surged dramatically, climbing over 50% within just a few days—a challenging blow for hedge funds that shorted the stock. Now, the question is whether Tesla can sustain this upward momentum. Yesterday, the stock saw a strong correction, dropping by 6.15%, yet with high trading volume and an intraday turnover rate of 5.49%, indicating that speculative interest remains strong. Notably, the price didn’t even touch the 5-day moving average, signaling a pullback rather than a reversal. As the saying goes, “If the price doesn’t break the 5-day moving average, there’s no need to worry,” so momentum could very well resume.

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There was some minor negative news: Director Wilson Thompson sold 100,000 shares on November 11, totaling approximately $32.12 million, according to SEC filings. However, unless it’s Musk selling shares, this development is less of a concern.

The fact that Tesla’s stock price rebounded after being stagnant for two years is impressive, but it also raises doubts about its sustainability. From a value investing perspective, the rise in Tesla’s stock price seems disconnected from the company’s core fundamentals. I originally believed Tesla’s growth was driven by strong fundamentals, but it seems the surge is more about Trump’s election and the momentum surrounding it, which is a cause for concern.

Trump’s election has had a significant impact on certain assets, with Tesla’s stock being one of the primary beneficiaries. The spike in its share price has been fueled by short squeezes, pushing the stock even higher. However, not all stocks tied to Trump’s victory have seen similar results. For instance, Trump’s media group hasn’t experienced the same surge in demand, indicating that the rally is selective.

If you focus solely on Tesla's car sales or projections about its AI ambitions—like Optimus and the Robotaxi—it’s clear that these metrics might no longer be reliable for predicting the stock's true value. Rather than following the latest earnings reports or sales data, it seems more effective to keep an eye on Musk's Twitter feed. For instance, Musk recently shared a post from Mike Lee suggesting that the Fed chair should align with Trump’s views, which raises a serious concern. If an independent central bank head starts taking orders from a president, the independence of monetary policy would be compromised, making it impossible for markets to accurately judge the true economic picture.

Musk's endorsement of this view signals that, in the short term, Tesla’s stock price may have moved far beyond its fundamentals. The surge we’re seeing now is likely more about political currents than business performance, and any future growth in the stock might not reflect the company's true long-term prospects.

First, let's look at BYD, which is experiencing an impressive sales surge. In 2020, their total sales approached 4 million vehicles. Although electric vehicles (EVs) have become the mainstream, their sales are still far from matching traditional gasoline vehicles. Take Singapore as an example, where petrol vehicles still outnumber EVs despite a growing market for electric models. However, globally, BYD is set to surpass Ford in total sales—an impressive feat considering Ford's longstanding presence in the automotive industry. If BYD can surpass Ford, it signals rapid growth and could potentially outpace Tesla's future expansion.

The second key observation is Tesla’s sales, especially the Cybertruck, which has been a significant hit in the third quarter, contributing to strong sales figures in the U.S., with 1.67 million vehicles sold. However, even with strong numbers, there are concerns. For instance, Tesla faces competition from traditional automakers like Ford and newer players. Moreover, the market seems to have shifted from assessing Tesla's core business fundamentals to being driven by political factors, particularly Elon Musk’s relationship with Donald Trump.

Musk's recent actions, including retweeting controversial statements, have tied Tesla’s stock to Trump’s political momentum. This has raised concerns about Tesla’s stock price being increasingly detached from its fundamentals. If the stock’s price is driven more by political factors and less by real business performance, predicting its future becomes more difficult. Musk's remarks, particularly his support of Trump’s views on the Federal Reserve’s independence, have shown that Tesla’s stock can be highly reactive to political news rather than just company performance.

In the short term, Tesla’s stock price may be rising, but it’s likely driven more by political events and market sentiment than by any underlying business growth. For investors looking to enter, it might be better to wait until the stock stabilizes or returns to a more reasonable valuation, where the price reflects more accurate fundamentals. Until then, any further upward movement seems less tied to Tesla's core business and more to external factors.

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