Stocks that hold incredible growth potentials and have cult-like followings have always intrigued me. In one sense, the rise in the valuations of companies like Tesla, Inc. (NASDAQ:TSLA) makes sense from the perspective of market capitalization approximating the social value of the goods a particular company produces.
The Environmental Social and Governance (ESG) mandate set down by various institutional land (and retail) investors would justify such a valuation. Green equals desirable is a bold and appropriate mantra, however, as we have seen in the past with other high-flying environmentally friendly outfits, green does not always equal profitable, the equation investors care most about.
Tesla is a unicorn stock with stockholders that seem to be willing to go to the grave with the stock, a benefit for the company’s stock price for sure. New factories in Germany and China, as well as the market access and political capital these projects provide, does make Tesla the most desirable auto manufacturer today.
Electric vehicles (EVS) are growing at a rapid rate, in market stance terms, relative to internal combustion engine (ICE) vehicles; and while we may have hit "peak auto" in North America, EV growth is Asia and other emerging markets is very desirable for long-term investors.
Despite all these tailwinds, Tesla has continued to fail at producing sustainable profitability in enough scale to support its operations. Its balance sheet tells a different story than its income statement, and its capital spending needs continue to be billions of dollars each year. I am still not convinced Tesla can survive on its own, and for that reason, I am still on the sidelines.
Invest wisely, my friends.
