Brad DeLong is not optimistic about the returns to investors for a lot of tech stocks today, including Tesla and crypto companies. But he distinguishes returns to investors from benefit to society.
Blog post about Tesla: https://braddelong.substack.com/p/teslas-valuations-and-?s=r
Consider: At its current stock price of $675/share, and with more than a billion shares outstanding, Tesla is “worth” $675,000 for each of the million cars it manufactured in the past year—it is selling, even now, at not just 90 times earnings, but 11 times trailing annual revenue. Think that, as equities, Tesla shares to have a long-run permanent earnings yield of 5%/year in order to support stock valuations. Thus the company’s realistic projected permanent earnings have to be $35 billion/year. Selling all the cars sold in America, and selling each for a profit of $20,000 per car, and getting there very quickly (for money in fifteen years is worth half of money today at standard equity discount rates)—that is what the marginal Tesla shareholder right now is “thinking” about Tesla and its prospects. (If you think it is going to take ten years for Tesla to reach market dominance, you need $30,000 profit per car.)
Or they could do it with a quarter of the American car market, with profits of $80,000 per car.
Or they could do it with a quarter of the American car market, with profits of $160,000 per car if it took them 15 years to get there.
It could happen. But do note that these numbers have your profits calculated after taxes and debt interest: this is not EBIT, let alone EBITDA.
Or some one of Tesla’s other future businesses could catch fire, at 1/4 of the iPhone scale of profitability—but what incentive does Elon have not to tunnel the valuable intellectual property out of Tesla and into another one of his vehicles as that happens?
Complicating matters is that Elon Musk is not a prudent fiduciary seeking to maximize the fundamental value of the payouts to shareholders from companies he is involved in. Elon wants to have fun and change the world: payment systems, electric cars, batteries, subways, travel to Mars, satellites! High stock market valuations are useful tools for that: they gave Elon social power in the form of wealth, and he then leverages that into social power in the form of celebrity influence. But if you inownstock in an Elon company, he does not work for you. You are, if anything, his prey—or, at best, a spear-carrier in the background on the stage, not even part of the chorus.
Tesla is… unlikely to be near its fundamental value today. Five years ago it was valued at 1/10 as much—that would be, if it obtained maturity fifteen years (now ten years out, in 2032), a quarter of the American car market with a profit of $8,000 per car: the equivalent of the old Ford Motor Company in its glory days, in a boom year.
Let me hasten to add that just because it is unlikely that Tesla shares are valued near their fundamental values, when Tesla is assessed as a profit-making enterprise, does not say much about the true value of Tesla.
In particular, it does not mean that Tesla is in any sense unworthy as a productive enterprise—on the contrary: it is an extraordinarily valuable enterprise, considered from the appropriate point of view.
But shareholders are unlikely to receive a great deal of that value.
We all have learned enormous amounts from Tesla’s attempts to profitably make electric cars at scale. In particular, all of Tesla’s present and future competitors have learned. The world in the future would be a poorer place if Tesla had not taken the plunge.
But the ultimate valuable product of Tesla is not likely to be cars sold in the future for more than the cost of materials and labor.
The ultimate valuable product of Tesla is likely to be the public good of all the engineering and social-organizational learning that Tesla-as-an-experiment is generating right now.