
Tesla is the world’s most valuable car company despite selling fewer vehicles per year than the likes of Toyota, BMW, or VW. Why? Well, investors, particularly investment banks and hedge funds, think Tesla’s technology could make it wildly profitable in the near future. But, a serious amount of pushback against that narrative is starting to grow. Investor Bill Gross recently took to the social media platform formerly known as Twitter to inform the internet that Tesla is acting “like a meme stock — sagging fundamentals, straight up price action.” While Musk fanboys reacted to this veteran investor’s insights with all the grace and self-awareness of a chimp through its own excrement at its reflection, Bill has a point. Since June 24th, Tesla’s value has increased a staggering 43.6% for seemingly no reason. So, is Tesla a meme stock?
Let’s start with what a meme stock actually is. A meme stock is a stock that gains popularity among retail investors through social media rather than fundamentals.
As such, it’s pretty easy to spot a potential meme stock. You see, as retail investors buy a meme stock due to hype, pushing its price up, institutional investors, who aren’t driven by social hype, will use the opportunity to offload their stocks at a profit. As such, a meme stock will more than likely have a really high trading volume (value of shares traded during a set time period), and the percentage of shares owned by retail investors will grow rapidly during the same time.
Well, over the past few weeks, Tesla had the highest trading volume of any US company. In March, retail investors held 43.16% of Tesla stock, which is already an insanely high level of retail ownership for such a large company. But that number has grown to 55.34%!
So, at least in terms of market analysis, Tesla looks like a meme stock, with retail investors piling in and institutional investors capitalising on the increased price.
But what is driving these retail investors to buy up Tesla?
Some have speculated that it’s down to Tesla beating their predicted deliveries, but that is ignoring the giant AI elephant in the room. You see, Musk has publicly bet the entirety of Tesla’s future on self-driving. He has reportedly dropped the affordable Model 2 in favour of developing a robotaxi on the same platform, stopped gigacasting development, disbanded the supercharger team, stopped new vehicle development, and seemingly given up on their 4680 battery development to redirect funds to their AI development team and infrastructure. All while their vehicle sales tumble and competitors start to overtake Tesla in specs, price and sales. In other words, Musk has boxed himself into a corner, and now the only way for Tesla to grow and keep its lead in the industry is self-driving cars. As such, on August 8th, Tesla is hosting “Robotaxi Day”, where it plans to lay out its self-driving rollout plans to the world.
Institutional investors are backing away from Tesla, showing that they are becoming increasingly sceptical of Musk’s new die-hard self-driving direction. However, some of them predict this shift could be huge for the company. Wedbush analysts believe the event alone could push Tesla stocks towards a $1 trillion market cap! Though, Wedbush owns Tesla shares themselves, so take this prediction with a pinch of salt.
However, retail investors who have been drawn in by Musk’s vision of self-driving hear predictions made by Wedbush and Cathie Wood’s Ark Invest and think that Tesla stock is about to explode on Robotaxi Day. As such, they are piling now to profit from this uplift.
But there is a huge issue here. Nothing suggests Tesla is even close to being able to roll out a usable robotaxi. At least, not at scale.
I’ve covered this many times before, but Tesla’s camera-only approach to self-driving is deeply flawed. It gives no redundancy to the system, meaning even slight environmental issues, computer vision errors, or errors by the driving AI can’t be checked and corrected for. If Tesla adopted LIDAR, ultrasonic and radar sensors, like every other self-driving company, this wouldn’t be an issue. However, it seems Tesla is sticking with its camera-only design for the upcoming robotaxi. Tesla-owned mule vehicles, likely testing the autonomous systems of the upcoming robotaxi, have new cameras in weird positions but no other sensor types. So, how can Tesla roll out at scale a robotaxi with such an inbuilt flaw?
This is what Bill Gross meant by sagging fundamentals. The technology that is meant to drive Tesla’s hypothetical colossal future revenue is utterly unproven and arguably not fit for purpose. Meanwhile, Musk is abandoning the technology, namely gigacasting, vehicle development, and battery technology, which actually got Tesla to its current value.
This is a reflection of a broader investing issue. You see, there is almost certainly an AI bubble where any company with AI as even a tiny part of its business plan is being way overvalued. That isn’t just me saying that; a recent poll by Bank of America found that 40% of fund managers think that AI-related stocks are in a bubble. With Tesla being one of the most well-known AI companies, is it really a surprise it has all the hallmarks of a meme stock?
So, is it actually a meme stock? Possibly. If Musk fails to correct the inherent flaws in their current self-driving systems for the robotaxi and the value of Tesla continues to grow, then yes. But if Musk announces plans similar to those of Rimac’s Verne, then such a value increase could be perfectly justifiable. Only time will tell.
Thanks for reading! Content like this doesn’t happen without your support. So, if you want to see more like this, don’t forget to Subscribe and help get the word out by hitting the share button below.
Sources: CNBC, Teslatrati, Forbes, Planet Earth & Beyond, Will Lockett, Will Lockett, Capital, Tipranks, Habit Trade