Tesla became a trillion dollar market cap company last week (end Oct 2021). This is a company that has not made positive cashflow since its inception. Yet, the market is saying this company should be in the exclusive club of trillion dollar companies, of which there are only six members today.
In my view, Tesla meteoric rise is a testament of two factors:
1. QE Infinity
2. We are in the biggest bubble of all times
It is a true irony that I am half-way through reading Ben Graham's Security Analysis and yet living in this moment when fundamentals do not seemed to matter anymore. In Ben Graham's days, he did not even bother to look at earnings because it was not possible to project companies' earnings with confidence. So he only looked at the balance sheet and only with co.s that has more current assets vs its market cap (a.k.a. net-nets).
Value investing then evolved to look at earnings of stable companies. Then we look at good businesses with strong moats. These are companies that can generate stable, growing cashflows. Today, I am not sure what we are looking at. Tesla has very little equity, no earnings, no cashflow and no moat. Yet, the market is saying it is worth a trillion dollars.
Let's see if Tesla's intrinsic value is truly 1,000,000,000,000 dollars.