Will the Tesla Bubble Burst? I think so, sooner rather than later!

Below is an article that was published today on the Reuters website. Yesterday, I had an extended conversation with a writer from the "Financial Times" on the same subject. The discussion was about traditional auto manufacturers as being categorized as hardware assemblers, while Tesla as a software firm. And consequently, Tesla serves as the leading edge for an automotive revolution the likes we have not seen.

My opinion is that while Tesla cars are the real deal, they are the real deal only for a small niche upscale market. Americans are for the most part traditional in their so consumer habits and resistant to change. Witness the controversy over face masks. Or the fact that what Americans want are large vehicles, SUVs like the Tahoe and Escalade. Analysts seem to not give enough credit to the hardwire manufacturers from Germany, Japan, and yes, even the USA. These firms move slow because they understand consumer fickleness and risk.  Remember that a considerable amount of revenue coming to Tesla is due to credits paid to them by other manufacturers because their fleets do not have enough zero emission vehicles. Once the competition from Germany, Japan, and the US go more green, those payments will be reduced substantially.

So much of Musk's Tesla future lies with petroleum prices and better technology and supply lines. This bubble will burst, once the uncertain economic future crystallizes in more certain forms.

Tesla's best chance resides with the election of Joe Biden, and his vision for a new Green Economy. A dramatic cultural shift is necessary for electric cars to proliferate during the next ten years. If the global economy falters, and the USA retrenches, then Tesla's brightness might gradually fade, like a slowly dying star.

FRANKFURT/BEIJING/DETROIT (Reuters) - Tesla Inc’s (TSLA.O) rapid rise to become the world’s most valuable carmaker could mark the start of a new era for the global auto industry, defined by a Silicon Valley approach to software that is overtaking old-school manufacturing know-how.

 

Tesla’s ascent took many investors by surprise. But executives at Daimler AG (DAIGn.DE), the parent company of Mercedes-Benz, had a close-up view starting in 2009 of how Tesla and its chief executive Elon Musk were taking a new approach to building vehicles that challenged the established system. 

Daimler, which bears the name of the man who invented the modern car 134 years ago, bought a nearly 10% Tesla stake in May 2009 in a deal which provided a $50 million lifeline for the struggling start-up.   

That investment gave Mercedes engineers an inside view of how Musk was willing to launch technology that wasn’t perfect, and then repeatedly upgrade it, using smartphone style over-the-air updates, paying little regard to early profitability. 

Mercedes engineers helped Tesla develop its Model S luxury sedan in exchange for access to Tesla’s partially hand-assembled battery packs, but in 2014 Daimler decided to sell their stake amid doubts Tesla’s approach could be industrialized at scale. 

Tesla would go on to pioneer new approaches in manufacturing, designs in software and electronic architecture which enable it to introduce innovations faster than rivals, leaving analysts to draw comparisons with Apple (AAPL.O). 

Three people directly involved with the Mercedes side of the collaboration said the brief partnership highlighted the collision of old and new engineering cultures: the German obsession with long-term safety and control, which rewarded evolution, and the Silicon Valley carmaker’s experimental approach which embraced radical thinking and fast innovation. 

“Elon Musk has been walking on the edge of a razorblade in terms of the aggression with which he pushes some technologies,” said a former Mercedes engineer who worked on the partnership.

By contrast, Mercedes and other established automakers are still not comfortable about releasing a new technology, such as partially automated driving, without years of testing. 

Tesla did not respond to requests for comment. 

Investors favor the Tesla model, in an industry undergoing fundamental and dizzying change even though the U.S. carmaker will face an onslaught of competing electric vehicles from established automakers during the next few years. 

They are putting their money on Musk and his company, even though Mercedes-Benz alone sold 935,089 cars in the first half of 2020, dwarfing the 179,050 delivered by Tesla in the same period. 

Today, Tesla is worth nearly $304.6 billion, more than six times Daimler’s 41.5-billion-euro ($47.7 billion) market capitalization.