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According to Yahoo Finance, TSLA is on a PE of 38 and a market cap of nearly $400b. High PEs are only warranted by high growth, which is difficult for a large c

According to Yahoo Finance, TSLA is on a PE of 38 and a market cap of nearly $400b. High PEs are only warranted by high growth, which is difficult for a large company to achieve. The narrative over the last few years is that tech stock will grow to the sky. We were in an ebullient bubble phase. Psychology is a factor in market pricing. The narrative is shifting. Interest rates are going up, the economy is tightening, people may lose their jobs and investors are realising that companies in high valuations leave precious hostages to fortunes. People are beginning to realise that TSLA doesn't have a monopoly on the production of electric vehicles. Above-average profits bring in competitors, which of course reduces those supernormal profits due to market forces. People go from "this baby's going to the moon" to "I don't want to be the last guy holding the bag." They'll be plenty of experienced investors on HN who know exactly how all this goes down. But they'll also be a surprising percentage of HN readers who won't. Despite being highly intelligent, they'll fall for narratives (perhaps even more so than their lesser intelligent counterparts), and rationalise why absurd valuations are justified. Falls tend not to be kind, either. It can take years to build up a head of steam, only for it to collapse in a few months. Crypto, anyone? Rising prices tend to feed on themselves. The higher and longer a stock goes up, the more it seems like a "sure thing". But there's no such thing as a sure thing. The higher it goes, the more detached it becomes from reality. Reality wins in the end, though.

c7b 4y ago
This. The better question is probably not why are those companies' stocks falling now, but why did they go so high before? Tesla still has an MCAP of around 400bn - for comparison, Volkswagen has around 70bn.
- Amezarak 4y ago
  Yeah, the stock market is one of those things I've convinced myself there isn't much point in trying to understand. I believe I could pick out different facts and construct narratives, but they would probably all be wrong. Legions of extremely smart people believe they understand the stock market and get it wrong all the time. What are my chances? Tesla is one of those things that cemented it for me. Tesla's market valuation - at least in my eyes - was insane. People would tell me "it's about where Tesla COULD go", but Tesla would literally have to have sold something like as many cars as the five biggest manufacturers combined, and they have very little actual moat. Why was Tesla's stock so high? Because it was. Why is it lower now? Because it is. If you can figure out the real reason why, you can probably predict where it's going next, in which case, congratulations on your future wealth.
  - hansfilipelo 4y ago
    but Tesla would literally have to have sold something like as many cars as the five biggest manufacturers combined Just to give some nuance to the high evaluation of Tesla - Tesla does produce around 10 times as many _electric_ cars as, what I think are their two biggest rivals globally, Hyundai Motor Group (KIA+Hyundai) and Volkswagen Group does. Tesla has also consistently been outpacing both in how much their production capacity of electric vehicles grows year-over-year. I think the evaluation dip of Tesla is very much related to: 1. Current state of general economy. 2. Investors realizing how absolutely bonkers its CEO is and his total lack of empathy for others than himself and his own ego. 3. Elon selling a lot of stock to finance his Twitter shitstorm.
    - ModernMech 4y ago
      At the same time, not living in a place where every other car is a Tesla (as seems to be the case when I visited San Diego recently) to the extent that I see electric cars they are VW and Kia. Teslas are very rare to see. We don’t have the same charging infra as other places so electric cars aren’t common at all; we just got our first charger at our first grocery store. But as that came, some people thought they’d want an electric car, and they didn’t turn to Tesla. If this trend continues and is representative of what’s happening elsewhere, that’s bad for Tesla.
      - hansfilipelo 4y ago
        But as that came, some people thought they’d want an electric car, and they didn’t turn to Tesla. This seems mostly like anecdotal. Note that all three big players (Hyundai, VW and Tesla) sells all cars they are currently producing, and have people in line for future cars (disclaimer: We ordered an Ioniq 5 2023 as soon as orders opened up early 2022, haven't gotten it yet). The difference is Telsa sells 10x as many cars that they produce at a lower cost (same price, smaller battery). As an example, while traditionally being cheaper - nowadays an Ioniq 5 is about as expensive as a Model Y (at least in Sweden where I live) due to Hyundai not being able to keep up with the demand. They simply can't produce the same number of cars Telsa can. Telsa are able to sell more cars at a higher price point. They can do so due to their bigger production, superior software, charging network and efficiency of the drivetrain. Given that demand would decrease for EVs in general, Telsa has a way bigger margin to decrease prices than VW or Hyundai. Their product is just better - full stop. This comes from someone who thinks Elon is an absolute idiot, has ordered a non-Tesla EV and absolutely hates the driver experience in the Model Y/3 (no buttons/switches, no instruments in front). I think neglecting what Tesla has accomplished so far and that the position they are in reflects on their market value is just lack of knowledge into how many EVs Tesla produces compared to anyone else.
- prasadjoglekar 4y ago
  Because interest rates and Net Present Value. "Growth" by definition is future revenues and profit. You discount that to get that future profit's current value. If interest rates are 0% - which they practically were since about 2015, every $ in the future is equal to a $ in the present, there's no discount. That's what made businesses with tenous present-day profits but notionally profitable futures fundable. Eg: TSLA, Netflix. Even internal projects like Disney+ operated on this same math. VW on the other hand has 50+ years of actual sales. They can't suddenly claim to sell 20% more cars; no one will buy that claim. Or for eg. that ESPN satellite subs will increase by 5M. With interest rates at 6%, all those future earnings discounted to present day don't look so good anymore. Present day money has lower risk alternatives to earn return. Hence the selloff. As an aside low interest rates encouraged companies to invest in high risk, capital projects in lieu of hiring low/medium skilled labor. Eg - self driving cars, or burger flipping robots. That's had some interesting consequences for certainly US society in terms of who labor votes for.
  - deleted 4y ago
    [deleted]
- readonthegoapp 4y ago
  Same reason FTX went so high - fraud.

c7b 4y ago

This. The better question is probably not why are those companies' stocks falling now, but why did they go so high before? Tesla still has an MCAP of around 400bn - for comparison, Volkswagen has around 70bn.

Amezarak 4y ago
Yeah, the stock market is one of those things I've convinced myself there isn't much point in trying to understand. I believe I could pick out different facts and construct narratives, but they would probably all be wrong. Legions of extremely smart people believe they understand the stock market and get it wrong all the time. What are my chances? Tesla is one of those things that cemented it for me. Tesla's market valuation - at least in my eyes - was insane. People would tell me "it's about where Tesla COULD go", but Tesla would literally have to have sold something like as many cars as the five biggest manufacturers combined, and they have very little actual moat. Why was Tesla's stock so high? Because it was. Why is it lower now? Because it is. If you can figure out the real reason why, you can probably predict where it's going next, in which case, congratulations on your future wealth.
- hansfilipelo 4y ago
  but Tesla would literally have to have sold something like as many cars as the five biggest manufacturers combined Just to give some nuance to the high evaluation of Tesla - Tesla does produce around 10 times as many _electric_ cars as, what I think are their two biggest rivals globally, Hyundai Motor Group (KIA+Hyundai) and Volkswagen Group does. Tesla has also consistently been outpacing both in how much their production capacity of electric vehicles grows year-over-year. I think the evaluation dip of Tesla is very much related to: 1. Current state of general economy. 2. Investors realizing how absolutely bonkers its CEO is and his total lack of empathy for others than himself and his own ego. 3. Elon selling a lot of stock to finance his Twitter shitstorm.
  - ModernMech 4y ago
    At the same time, not living in a place where every other car is a Tesla (as seems to be the case when I visited San Diego recently) to the extent that I see electric cars they are VW and Kia. Teslas are very rare to see. We don’t have the same charging infra as other places so electric cars aren’t common at all; we just got our first charger at our first grocery store. But as that came, some people thought they’d want an electric car, and they didn’t turn to Tesla. If this trend continues and is representative of what’s happening elsewhere, that’s bad for Tesla.
    - hansfilipelo 4y ago
      But as that came, some people thought they’d want an electric car, and they didn’t turn to Tesla. This seems mostly like anecdotal. Note that all three big players (Hyundai, VW and Tesla) sells all cars they are currently producing, and have people in line for future cars (disclaimer: We ordered an Ioniq 5 2023 as soon as orders opened up early 2022, haven't gotten it yet). The difference is Telsa sells 10x as many cars that they produce at a lower cost (same price, smaller battery). As an example, while traditionally being cheaper - nowadays an Ioniq 5 is about as expensive as a Model Y (at least in Sweden where I live) due to Hyundai not being able to keep up with the demand. They simply can't produce the same number of cars Telsa can. Telsa are able to sell more cars at a higher price point. They can do so due to their bigger production, superior software, charging network and efficiency of the drivetrain. Given that demand would decrease for EVs in general, Telsa has a way bigger margin to decrease prices than VW or Hyundai. Their product is just better - full stop. This comes from someone who thinks Elon is an absolute idiot, has ordered a non-Tesla EV and absolutely hates the driver experience in the Model Y/3 (no buttons/switches, no instruments in front). I think neglecting what Tesla has accomplished so far and that the position they are in reflects on their market value is just lack of knowledge into how many EVs Tesla produces compared to anyone else.
prasadjoglekar 4y ago
Because interest rates and Net Present Value. "Growth" by definition is future revenues and profit. You discount that to get that future profit's current value. If interest rates are 0% - which they practically were since about 2015, every $ in the future is equal to a $ in the present, there's no discount. That's what made businesses with tenous present-day profits but notionally profitable futures fundable. Eg: TSLA, Netflix. Even internal projects like Disney+ operated on this same math. VW on the other hand has 50+ years of actual sales. They can't suddenly claim to sell 20% more cars; no one will buy that claim. Or for eg. that ESPN satellite subs will increase by 5M. With interest rates at 6%, all those future earnings discounted to present day don't look so good anymore. Present day money has lower risk alternatives to earn return. Hence the selloff. As an aside low interest rates encouraged companies to invest in high risk, capital projects in lieu of hiring low/medium skilled labor. Eg - self driving cars, or burger flipping robots. That's had some interesting consequences for certainly US society in terms of who labor votes for.
- deleted 4y ago
  [deleted]
readonthegoapp 4y ago
Same reason FTX went so high - fraud.