About a year and a half ago, Elon Musk announced, falsely and on Twitter, that he had “funding secured” to take Tesla private at $420 a share, a move that would free him from worry about the short sellers who doubt his company’s long-run potential and annoy him by pushing down its stock price. He did not really have funding secured, which made some sense because $420 was a significant premium to Tesla’s then-prevailing stock price of around $300 per share. The tweet caused a lot of trouble, and Musk had to pay a big fine to the Securities and Exchange Commission.
As of this writing, Tesla is trading at $755 per share.
Tesla’s stock-price chart has lately looked like a hockey stick. As recently as mid-October, Tesla was trading around $250, well below its price at the time of the funding-secured debacle. It ended November at $330, December at $410, January at $650. Then on February 4, it soared all the way to $965 per share, nearly tripling in value over two months. The price has since come a little more down to Earth — now it’s trading at $764, nine dollars higher than when I wrote the last paragraph — but that’s still a wild run upward that gives Tesla a market valuation of $134 billion, making the company about two-thirds as valuable as the world’s most valuable carmaker, Toyota, and four times more valuable than Ford.
Unfortunately, I don’t really know why. When stocks go up this much, there is usually an identifiable reason — a buyout offer at a high price or a drug with blockbuster potential that has passed clinical trials, for example. With Tesla, there’s no obvious company event to have triggered such a strong rally.
Matt Levine of Bloomberg devoted much of his newsletter yesterday to the question of why Tesla is up so much, and he doesn’t have an answer either. News about the company’s earnings has been good, but not this good. There are some technical explanations — many of those short sellers Musk hates had to get out of their short positions as the stock rose, and exiting a short position involves buying the stock, and so can push the price up more; as investors bought options that pay off if Tesla stock rises, that forced the dealers who sold the options to buy Tesla stock to hedge their positions — but those effects don’t seem large enough to explain that much of the move, especially because Levine identifies some other technical factors that should have pushed in the opposite direction.
That leaves Levine with a simpler explanation: People really like the stock and are buying it. “People” here often means literal retail investors. For most stocks, investing is primarily an activity done by mutual funds and very wealthy people and institutions, but Tesla is one of those stocks with lots of “fans” who buy in their personal portfolios, and Levine sees that showing up in data about Tesla trading on the retail platform Robinhood. Of course, Tesla has had fans for years, and just as Musk has to deal short-selling naysayers talking down his stock, he’s always had legions of fanboys insisting that he and his company will change the world. Bitcoin has long had lots of fans, too — in many cases, the same people — and its price is volatile, moving up and down on the basis of sentiment.
To be clear, Tesla is not Bitcoin. Bitcoin inherently has no value at all; it is only valuable to the extent that investors feel that it is valuable. Tesla stock is backed by the future profits of an actually existing company with patents and products. But to the extent that Tesla’s retail investors behave like Bitcoin’s retail investors, you might expect Tesla’s stock price to move around in unaccountable ways that mimic the unaccountable moves of Bitcoin. It’s an added layer of volatility on top of what you’d expect from an already speculative stock.