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Elon Musk: The Man, the Myth, the Risk

Posted by hkarner - 9. Juni 2017

Date: 08-06-2017
Source: The Wall Street Journal

Tesla’s boss is a big part of the auto maker’s soaring value, but his jokes are no laughing matter.

Tesla Inc is one of the hottest stocks on the planet, thanks to investor belief in Elon Musk. Paradoxically, that might be the biggest risk investors face.

Take the events at Tuesday’s annual meeting, for instance. In response to a question about what the company CEO and chairman does in his time away from work, Mr. Musk said, in part, “Sometimes go crazy on Twitter. You know, sort of, red wine, vintage record player, some Ambien, magic! Magic happens.” The assembled crowd burst into laughter.

Investors certainly are laughing all the way to the bank at the moment. Tesla’s shares are up by about two-thirds just this year, propelling it to a significantly larger market value than more-established and profitable General Motors or Ford. The Model 3 mass market sedan is due to enter production next month, and the stock’s many short sellers are under significant pressure. Shares once again ripped higher Wednesday morning.
This is a good time for investors to understand that belief in Mr. Musk’s vision, not traditional financial measures, is far and away the main reason to own the stock.

Tesla loses money consistently and analysts covering the stock have lately been slashing profit projections. For example, analyst consensus called for $6.26 a share in 2018 in adjusted profits a year ago, according to FactSet. Now, analyst consensus calls for an 89 cent loss. A similar pattern can be observed out to 2020, but investors clearly don’t mind.


Tesla Chief Executive Elon Musk

Therein lies the danger. The stock depends on Mr. Musk working his magic. And while the audience treated those comments like a joke, Ambien, a powerful treatment for insomnia, isn’t something to chuckle about. “Do not use with alcohol” warns the Food and Drug Administration. The FDA further warns that “sleep-driving” is “more likely to occur when Ambien is taken with alcohol.”

The stock now trades at 79 times the 2019 earnings estimate. At that price, Mr. Musk’s utterances should be keeping shareholders up at night.

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