Why is Tesla's market cap so high?

Great Debates
261

Nvidia is the opposite side of the Tesla coin. It’s making tons of money but its valuation has dropped by a Musk, I mean a trillion dollars since May.

The “smart” money is already looking ahead to the fortunes that AI will bring them and so dropping stuff as boringly cash-cowish as chips.

Nvidia does pay out a dollar per share in annual dividends, or 0.49% annually. Tesla and SpaceX pay zero. If you don’t want to make a speculative bet on the future:

The highest annual dividend yields belong to specialized equities like Business Development Companies (BDCs), Real Estate Investment Trusts (REITs), and closed-end funds (CEFs), which often yield between 15% and 30%.

Or take a flyer on GMEX Robotics, which is at 1968.75%.

262

I wonder how much of that is because so many companies are working on their own AI chips so they won’t have NVIDIA as a bottleneck.

Looking into it, NVIDIA’s profits were only about 4 billion in 2023, before AI took off. I’m guessing in 5 years there will be multiple alternatives to NVIDIA since most of the major AI companies are working on their own chips, and the stock price will collapse. But that’s just a guess. I don’t know financially who will win in the AI race.

263

Exactly. Today’s stock valuations on based on expectations of future events.

Another interesting example is Samsung. In the second quarter, Samsung generated an operating profit of almost $60 billion. In the same quarter 2025 that number was about $3 billion. $60 billion is more than the combined profits of the eight quarters in 2024 and 2025. Yet the stock price dropped 7% with the news.

Yet again, on July 1, 2025 Samsung’s stock price was 60,300 KRW. A year later it was 314,500 KRW. Anybody who bought Samsung at that earlier time saw a 500% increase in the value of their stock. Nvidia, by contrast, has only seen a 29% increase in the stock price.

According to rational stock theory, it was rational to buy Samsung stock on July 1, 2025 because their expectations of a future rise came true. Or at least it was true after one year. It was also rational to buy Nvidia stock on July 1, 2025 because their expectations of a future rise came true. Or at least it was true after one year.

How then does anyone evaluate a stock price? Are they looking a year out? 5 years? Ten years? Or six months out, or two months, or a week? All “correctness” of stock pricing can only be done in hindsight. I should have bought Apple stock not just at its low point but also after its recovery, although at the time those evaluations seemed ludicrous.

Tesla and SpaceX evaluations continue to seem ludicrous. No current numbers can support them. In the future, competition from other companies will challenge whatever advantages the companies seem to have now. General mismanagement and shifting priorities seem to be all too likely. But I, like every other person on the planet, don’t know the future.

The recent past was famously unlikely and unpredicted; it’s impossible to rationally justify just about any 21st century bet about stock prices. Nevertheless, the stock market just keeps climbing. Are we in a long bubble? Will we see a gigantic crash? Who will win the World Cup in 2030? Hell, who will win the World Cup in 2026? Asking the questions are necessary, but we’ll all be surprised with the answers. I’m continually amazed that the system works at all, despite its being unavoidably irrational every second of every day.

264

As Kai Ryssdal is fond of saying, “the market is an idiot.”

265

Most analyst recommendations famously are to buy, and hardly any are to sell:

Here is the first link on it I found.

While the more anal among them have studied the likes of Security Analysis, paid stock pickers do not have to, and probably did not. Michael Lewis told me somewhere, in at least one of his books, that the analysts who make stock recommendations are hired because of being good writers and talkers rather than being experts in analyzing companies. And the fact that they hardly ever say to sell proves it.

I haven’t read Graham’s classic either, being an index fund buyer. But from what I read in A Random Walk Down Wall Street, it only takes a relatively few people who think they know more than they do to move individual stock prices.

That last book also told me that the reason I get, on average, over decades, more return from stocks than a bank CD is the higher risks of stocks.

As to whether stock prices more reflect long term or short term expectations, I am thinking short term. Almost everyone knows there will be a crash – just not when.

Tesla’s market cap is high because a relatively few traders think it will soon be higher.

266

I would go by the weakest possible form of the Efficient Market Hypothesis. Current prices do NOT include all the information available concerning the company. But that price does include enough information about the company so that only a stock market genius could name a more rational price. And not only are such stock market geniuses extremely, amazingly, few, they also are basically impossible to identify until their approximate retirement age. So you might as well act as if prices were rational, even while knowing they are not.

267

That was, of course the book that influenced Warren Buffett. I think he even attended business school at Colombia to study under the author (but don’t quote me on that). But I think enough people are aware of Buffett’s strategy that it’s difficult to find companies that are undervalued the way many of his stock picks were. And Berkshire Hathaway is so big nowadays, most companies that meet their acquisition targets are so small they wouldn’t make an appreciable difference to them, especially given that Berkshire Hathaway has something like $400 billion in liquid assets.

268

That is indeed the rational course of action.

269

It’s about SpaceX, not Tesla but this editorial (gift link) is interesting. The paper edition of the New York Times has this as the teaser on the top of the Sunday Opinion section, “On Wall Street, the dumb money thinks SpaceX is a great investment, and the smart money is running away.” The opinion piece begins

The recent initial public offering for SpaceX was the biggest stock sale the world has ever seen, with shares priced as if life on Mars were a sure thing. The company’s debt, on the other hand, is priced as if it were junk.

The suggestion is that the stock buyers are naïve, while those who are buying the debt are experienced investors.

270

After its earnings announcement, the stock price is down roughly 12.5% today, in part because the company “missed ​analysts’ Q2 profit forecasts, and, for the first time in more than two years, reported negative free cash flow” according to Reuters.

Another Reuters article talks about the slow deployment of the Robotaxi service. Musk claimed that the robotaxi service would expand at a “hyper-exponential rate” and be available to half the American population by the end of 2025. One of his executives now says of the growth in robotaxi miles that it’s “literally exponential. Just it’s in the early part of the exponential. That’s why it’s hard for others to comprehend.” That sounds like a weak-ass argument.

And now Musk is refusing to rule out a merger between Tesla and SpaceX. He said in the earnings call, “As you can tell from the many collaborations on so many fronts with SpaceX, there’s more and more overlap.”

Yet another attempt at goosing the stock price.

271

SpaceX is down 30% from the IPO and still dropping.

272

I’m really wondering if Musk can keep this scam going until he dies of old age. He is 55, can he keep this scam going another 30 years of promising that he can corner the market on endless trillion dollar future markets, and keep failing to deliver.

Electric cars - he is losing to BYD now. Global EV sales keep going up, but tesla sales are flatlined and are becoming a smaller and smaller percentage of EV sales due to it.

Bipedal robotics - a dozen companies are working on these, so the market will be cutthroat. Many people don’t want a fascist like Musk putting robots in their homes. Many other brand are already superior to Tesla robots

Space travel and reusable rockets - Many other companies are working on this too

Self Driving - Tesla is inferior to Waymo and various Chinese companies at this

AI - Grok is in a crowded market and it not the best

I want Musk to fail, but I don’t think he will.

273

This is complete bullshit. Waymo is very good at this time in limited geofenced areas. Arguably better than Tesla but at best only slightly better. No one is anywhere close to Tesla in entire country driving. Tesla is already approved for entire country driving in the US, Mexico, Canada, Australia, NZ, China and a few European countries with more coming by the end of the year. No one else is approved anywhere and I haven’t heard of anyone being close. Many have a some kind of smart cruise control but none have point to point. This is the singular thing where Tesla is objectively much better than everyone.

Do you have any experience at all with this? Where are you getting this information?

274

They’re taking two different approaches, Waymo has near-L4 in geofenced areas and Tesla is doing whatever it is they’re doing. Nobody knows which approach will pay off soonest.

275

I recently listened to this interview with the authors of the book Muskism, and they talk about things addressing your question, and the whole point of this thread.

Their explanation, if I remember and interpret correctly, is that none of the details of the promises Musk makes and breaks matter. All that matters is that other very rich people, and managers of large investment funds, believe that Musk will return them profits. They believe this because he has an excellent track record of returning huge profits to investors.

They are very critical of Musk, but are not so blinded by hate to delude themselves about where he has been successful. They recognize that he is by far the most successful person in the world at convincing other people to invest in him, and that much of his success is because the investors know he is good at convincing investors to invest.

Other parts of the belief in Musk is the idea that he has a sense of where technology and markets will be going, because in the past he has been right. He is also skilled at convincing governments to invest in him.

The answer to the OP ends up being a tautology. The market caps in Musk’s companies are high, because they used to be high (but not as high), and major investors think they’ll be even higher in the future.

276

Tesla is approved for level 2 self driving, along with endless other cars.

My understanding is various cars are approved for level 1 and level 2 self driving. Only Mercedez is approved for level 3 driving, and thats only in certain parts of NV and CA, and only at certain speeds. Level 4 self driving is geofenced to small locations.

Can you explain where you got the information that Tesla is approved for level 5 FSD in the entirety of North America, when their level 4 rollout is only in a few cities in Texas and Florida?

Based on the roughly 800,000 cumulative paid miles Tesla has logged, Electrek estimated that its robotaxi fleet is crashing once every 57,000 miles—nearly four times more often than Tesla says human drivers crash. “That is not a rounding error or an early-program hiccup,” says Electrek. “It is a fundamental performance gap.”

277

So in in all of these technologies (electric cars, bipedal robotics, reusable rockets, self-driving cars and AI), his companies are one of many. I concede that he has been more successful in reusable rockets and the Starlink technology than others but in the case of the other technologies, he has not.

278

But that still ties back into the P/E ratios of his companies.

SpaceX has a negative P/E ratio, and Tesla has a P/E ratio of 300. The S&P 500 has an P/E ratio of 25.

BYD, which has overtaken Tesla in EV sales, has a P/E ratio of 20. BYD also has point to point self driving like Tesla.

279

The point was that this doesn’t matter. It’s not the P/E ratio, but the personal relationships, gut feelings, and past history that are making the difference. Who cares what some small time investor trying to make sense of the market thinks, when Musk can personally convince someone with $500 billion under their management to buy a bunch of SPCX.

This can absolutely fall apart, and is no guarantee the performance of Musk companies over the last 20 years will be reflected in the next 20 days.

280

Right, but where are these returns coming from? They’re not from the companies being wildly profitable or anything. It’s just the greater fool theory on an inconceivable scale – investors hope they will make a lot of money from other investors and that they’ll manage to get out before the whole ponzi scheme collapses. It’s insane.