Interesting analysis of Teslas share price jump

Have a look at this analysis of Teslas share price jump... Aivars Lode

According to the chart, the share prices of both the South Sea Company and Tesla increased four-fold in 16 weeks. Not sure about the former, but it is definitely what Tesla did – from $220 in late September to $880 in early February.

So do we conclude from this that the Tesla Bubble will burst as spectacularly in another three months as the South Sea Bubble did after the stock hit £1,000 in August 1720? 

Maybe … I don’t know. I’m certainly not jumping into the zooming Tesla at this point, and paying a valuation greater than Ford, GM, Daimler Benz and Hyundai put together for a car company that has only just started making a profit in the third quarter of 2019.

Back to 1720: the South Sea Company was established to repay government debt – it was, in effect, the privatisation of a trading monopoly. Interest rates were falling and there was plenty of liquidity about, partly because of the colossal public deficit, in turn caused by two simultaneous wars, the War of the Spanish Succession and the Great Northern War between Russia and Sweden, although why England was involved in either of them can only be guessed at.

The current situation is not dissimilar: massive US government deficit, low-interest rates, plenty of liquidity and public excitement about an investment opportunity – not the opening up of trade with South America and the South Pacific, but electric vehicles and battery storage for electricity.

I’m going to go out on a bit of a limb here: Tesla’s share price might eventually collapse, especially if it goes up some more, but it will take longer to do so than the South Sea Company, which took off in February and crashed in August, of the same year (1720). 

And it’s also possible that Bill Selesky of Argus Research, the guy who lit the fire by raising his 2020 target price for Tesla on Monday from $556 to $808 will turn out to be right, and it doesn’t collapse at all.

“Our positive view assumes continued revenue growth from the legacy Model S and Model X, as well as strong demand for the new Model 3, which accounted for more than 80% of 4Q19 production,” Selesky wrote, in what seemed a fairly sober note.

Selesky triggered a bonfire of the shorts, who all had to cover, disastrously. Not sure there was any short-selling of the South Sea Company in 1720. Everybody was long then, it seems, until they weren’t.

By Eureka Report