Professor Glenn A. Okun
Elon Musk is driving Tesla’s hype machine faster than he could drive his not-yet-built Roadster. Last week, he claimed that the Roadster model, currently four years behind schedule, will accelerate from zero to sixty miles per hour in one second.
The Rabid Capitalist has his doubts. But I cannot doubt the speed with which Musk can supply copy for press releases proclaiming bold innovations. The Roadster announcement is one of many claims that historically have not been realized. Actually, it is the second time that this product breakthrough has been touted.
Tesla’s many claims have included:
- An electric car company (2010);
- A driver-less car company (2016);
- A robot taxi company (2019);
- A robot car company (2023); and
- An artificial intelligence company (mid 2023).
With a track record of one actual success out of five announced radical innovation “triumphs”, one would have concluded that Tesla’s credibility would have been destroyed. As subscribers can see in the chart below, the company’s reputation has been damaged but not yet ruined.
But depleted credibility has damaged the investor enthusiasm and stock price accretion that has resulted from successive pronouncements. The market yawned at the latest revelation from Tesla.
The Rabid Capitalist expects that Tesla’s track record will fall to one out of six. Thereafter, Tesla will be at risk of not only destroying its credibility but also suffering a major contraction in valuation at the hands of a crowd of doubters. When belief is replaced by reality and investors assign an automaker’s valuation multiple (instead of a technology firm multiple) on the company, its stock price could fall by two-thirds.
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