As of December 21, 2020, Tesla is set to join the S&P 500 with a market capitalization of over $650 billion. Such a valuation implies the ability to deliver earnings that seem at odds with reality. Tesla has barely begun to show a profit and must earn billions soon (or many billions later) if it is to come close to justifying that valuation. Berkshire Hathaway, by contrast, has a market cap of approximately $525 billion and earns about $25 billion after-tax. It also has over $125 billion in excess cash that can be put to profitable use. Benjamin Graham said that in the short run the market is a voting machine and in the long run it is a weighing machine. I believe it more probable that the market will correctly reappraise Tesla's market cap down to a more reasonable level over the next nine and a half years. Tesla is an amazing company whose success I am rooting for as a citizen. Elon Musk is pushing our civilization in a direction it needs to go, and making science/engineering fun for the next generation. However, enthusiasm for the future of electric vehicles and related products should not be translated into unbounded enthusiasm for the valuation of a company. Shareholders of Tesla at current valuations could be in for a shock.
Challenge Adam J Mead to a bet on this prediction!