Published 4:45 PM EDT Oct 22, 2018
For the past 30 years, stock analysts and financial reporters have frequently boosted two investing archetypes: the “it” company and the superstar CEO.
Never mind that many of those “it” companies — Enron, Yahoo, Snap — were greatly overhyped, or worse. And never mind that many of those CEOs, such as General Electric’s Jack Welch and ExxonMobil’s Lee Raymond, owed their success more to good timing than to superlative managerial skills. The race to champion the champions was seemingly unstoppable.
Now comes the story of electric carmaker Tesla, which combines both archetypes. Its car line has dazzled, with one of its early models earning the highest car rating ever awarded by Consumer Reports. Its CEO, Elon Musk, has long been seen as a visionary, someone who could not only build swell new cars but also figure out the riddles of affordable space travel, practical solar energy and hyperfast underground transportation networks.
We don’t know how well Tesla will ultimately fare. But we can’t help but be amazed by how quickly it has gone from unstoppable force to an object lesson for the need to refrain from excessive enthusiasm.
OPPOSING VIEW: Tesla shareholders, not the SEC, should hold the leash
Its stock is down from a high of more than $383 last year to $261 on Monday. Musk has, with just a few tweets, gotten himself and the company in trouble with the Securities and Exchange Commission and come off more like an immature techie than a capable business leader.
This combination — a suddenly out-of-favor company and a CEO behaving badly — is a good example of why the hype machine from Wall Street and the financial media does the public a disservice.
Without doubt, Tesla makes fine cars and has been an innovator in new technologies. Even so, it is in a manufacturing industry with difficult supply chain issues and confounding politics. It also faces a slew of incumbent competitors and a reality that gasoline-powered cars are likely to remain the preferred mode of transportation for the foreseeable future.
Its rapid expansion has been impressive. But to get to where it is today, making inroads in the luxury car market but still a minor player as measured in overall vehicle sales, Tesla has $9.4 billion in long-term debt and is adding to its red ink at a rapid rate.
Musk, meanwhile, has gotten the company into, out of and back into trouble with his overeager fingers. In August, he reported that he was close to a deal to take the company private. He was not. And even if he had been, this is the type of announcement that affects stock prices and needs to be made through proper channels. The SEC had no choice but to sanction him.
Musk was able to reach a settlement with the SEC in late September. But recently he was at it again, calling the SEC the “Shortseller Enrichment Commission.”
In the long run, Tesla could zoom forward like a Model 3 accelerating to 60, or crash and burn, or something in between. One thing is highly likely: It will serve as lesson in why people should avoid irrational exuberance when it comes to buying the hype.
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