Elon Musk is a brilliant genius, perhaps unlike humanity has ever seen within the past thousand years, but making money is, relative to his other gifts, not a particularly strong gift of his. And so, he is not a good short-term bet, but rather, a good long-term bet. He has already, and will almost certainly more so in the future, change the world for the better in ways that the world hasn't seen the likes of in thousands of years.
Thesis & Catalyst For Tesla Motors (NASDAQ:TSLA)
Tesla Motors is overvalued, if for no other reason, than it's ridiculous to trade a car company at these P/E ratios. Although its CEO comes from the tech/Silicon Valley world, as much as you wish it, making cars will never be a fast, cheap, easy to produce product. Electric or gasoline powered, it is still a car.
Why Elon Musk Is Not A Good Short Term Bet
Elon Musk, though brilliant, is not a particularly good businessman.
He's primarily focused on getting to Mars, and not making money, thus making any money he does make headed to Mars.
His company, Tesla Motors is grossly overvalued in my opinion, and should be by anyone else who is being honest with themselves.
Long before I'd ever heard of Elon Musk, I read a science fiction novel entitled "Society of the Mind" written by the author Eric L. Harry. It was a wonderful story, in my opinion, and Harry created a protagonist by the name of Joseph Gray who was someone my young and impressionable mind found irresistible. I wanted to be Joseph Gray! Harry's novel was about a multi-billionaire (which at the time when he wrote it, was an EXTREMELY rare thing) who is the epitome of true genius. Joseph Gray built the first sentient computer, and in the process, the greatest fortune the world had ever seen. Eric L. Harry did not pick his novel's title at random. It was a nod to the late, great, artificial intelligence and cognitive scientist, Marvin Minsky's non-fiction book entitled "The Society of Mind." This isn't an article about science nor science fiction, so I shall let the reader investigate the difference between the two titles and why that difference is important, but I felt it important to give the late Dr. Minsky credit for his contribution to this article. You see, the seed of Joseph Gray's fortune was in the very beginning artificial program that he wrote using something mathematicians term 'fuzzy logic'. With his artificial intelligence's analysis of market data, Gray was able to predict a huge market downswing, and as a result, he was able to take every penny he'd earned up until that point, which was several million dollars, and buy puts against the market (it is during this time in my career and because of this novel that I became interested in the stock market). The market tanked, Joseph Gray had to explain to board of inquiry after board of inquiry how he was able to predict with such accuracy how he was able to predict so precisely the future, and finally, after none could find any wrongdoings, he was able to reap the rewards of his and his sentient computer's efforts, and become a multibillionaire.
After many years of study and endless nights of research, without the benefit of a sentient computer (even though I attempted to build one), I have never been able to duplicate Joseph Gray's success. However, I do know quite a bit about the stock market, and fuzzy logic. Such is how lives unfold. I had to accept as I grew older that I would not be the next Joseph Gray. But, something interesting happened … I watched someone named Elon Musk become, in my mind, the heir apparent to Joseph Gray. I was sure of it, and the more success Musk had, the surer I was that I was correct. As he parlayed his money from PayPal into Tesla , and put his cousin in charge of a company that was also his idea, Solar City (SCTY), and most of all, when he duplicated Joseph Gray's feats of launching his own rockets into space via his company, SpaceX, I was absolutely certain that Elon Musk was the real life version of the fictional character of Joseph Gray, and no one would blame me or did blame me as I drew that comparison. Until I blamed me.
Joseph Gray did something that Elon Musk isn't particularly good at, you see. He made money. His OWN money. If he borrowed money, which he only did at first, Joseph Gray PAYED IT BACK. Could it be possible that Elon Musk has had this plan all along, and I remember thinking to myself that it WAS possible that this is what he was doing; tha t Elon Musk was borrowing money to build his empire, but if one part of his empire started to crumble, it turns out that his only real genius was in finding a new way to finance it and keep the whole thing afloat. Because the only real part of his empire that he really cares about is his efforts in space and in building his city on Mars. If you look back at some of his statements to various reporters, he even tells us that this is the case. But of course, everyone was so bedazzled by how he was going to make Tesla work, and when Solar City started to crumble, how he would buy it with Tesla shares and roll it into Tesla, no one bothered to look back at those statements and to look at what really drives him. Space does! The thought of living in a city that he built on Mars is what drives him! And being a huge fan of science fiction and space exploration and space exploitation, I'm VERY okay with that being his only real interest. The Earthlings on Wall Street are getting impatient with Tesla or Solar City? Throw them one of your many genius ideas like the hyperloop for free to keep them distracted. After all, he IS a genius. Of that I have no doubt. I just don't think he cares that much about any of his endeavors here on Earth. The ones he's taken public so that he can make money from. Because, you see, unlike Joseph Gray, Elon Musk doesn't have a sentient computer telling him what to do next and how to turn his pieces of property into the most profitable pieces of square footage in human history by creating sentient computer driven automated machines. It's just him. And regardless of how smart he is, eventually there's a limit to the rate of return on what his human brain can produce.
And I think he's aware of this. Not in a way that he can be held legally responsible, mind you, because then we'd have to start arresting and jailing every CEO and inventor on the planet. But he knows that his genius must, in the end, stay focused on one, ultimate prize, if he is to achieve that prize. And that's why he hasn't taken SpaceX public, and is desperately refusing to do so. Because if he does, then the one thing he holds most important to him suddenly has to become profitable. Elon Musk doesn't care if building a city on Mars is profitable. He just wants there to be a city on Mars. Why? Because, like me, he just wants to live there.
So if you're thinking that you're eventually going to make money off of Tesla as it one day becomes successful in making the batter factory a reality, and electric cars dominate the roadways, you're mistaken. Or at the very least, your time table is going to be much longer than you think it will be. Because the very MOMENT that SpaceX starts manufacturing the building blocks that will actually take us to Mars and not just into low Earth orbit, where Musk has a load of paying customers with more Earth-based dreams, his brain will forget about Tesla, solar power stations, battery factories, and everything else on Earth. Now, it's true that he will already have put these projects into motion and other people may be capable of making them successful, but Elon Musk's brain, that ephemeral genius that is always able to come up with a solution to the problem with no answer … that brain will be far away, on its way to Mars. You see, in the long run, Elon Musk will be remembered not as a Henry Ford or Thomas Edison, but as an Albert Einstein or Isaac Newton. As hard to imagine as it is when he's got billions of dollars and surrounds himself with the trappings of wealth, Elon Musk is not particularly good at making money. His genius lies in building things that people have dreamed of building for centuries. His genius lies in what little boys dream of. So I wouldn't bet my hard earned money on him coming through on anything that grown men think about. I'd never even consider and never have bought a share of Tesla or Solar City when it existed, though I believe both are noble efforts. Why? Because that's not where Elon Musk's heart is.
But you might get me to buy a one-way ticket to and an apartment on Mars.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am actually a fan of Mr. Musk's. I just don't think anyone who wants to make money off of a stock in the first 50 years of their life should even think about investing in TSLA or any other company he bothers to take public.