Pro Perspectives 5/20/22

May 20, 2022

Let's take a look at Tesla.
From the pandemic lows, Tesla stock rose about 14-fold in a matter of ten months.   By November of last year the stock was up almost 19-fold from the pandemic lows (that's in 20 months). 

Thanks to this rise, Tesla became a top four weighting in the S&P 500.  And Elon Musk became the richest man in the world. 
Why did Tesla's stock take off?
If you believed that the pandemic would derail a Trump re-election, and clear the path for the clean energy agenda and America's return to the Paris Climate Accord, then Tesla represented the global climate action cooperation trade — the anti-oil trade. 
As such, money plowed into the stock, from around the world, seemingly indiscriminately — as the manifestation of the global clean energy transformation. 
Tesla became valued as if it would destroy the entire auto industry.  By December of 2020, the market value of Tesla was equivalent to the market values of Toyota, Volkswagen, Daimler, GM, BMW, Honda and Ford … combined
How did Tesla even get there in the first place?
The Obama administration loaned the company $465 million back in 2009, at the depths of the financial crisis, under the administration's strategy of "investing in emerging technology."  Telsa had a new CEO (Elon), was burning cash and amassing liabilities (they were broke), and had yet to produce a consumer viable car.  This was an uninvestable company, that the government plowed almost half a billion-dollars into. 
But when the government money hit, the big institutional money aggressively followed it.  After all, at the depths of a economic and stock market crash, government stimulus was the only game in town.  Tesla not only survived, with the government as it's partner, but began to build market share with the benefit of government subsidies.  
Fast forward to March of 2020.  Again, government stimulus was the only game in town.  And the investing universe somehow quickly saw the pandemic as a catalyst to drive political change in the United States, and subsequently, profligate fiscal spending to fund the climate agenda.
The result:  The chart above. 
But then Elon made the mistake of pursuing the takeover of Twitter.  This appears to be biting the hand that fed him, as he is threatening the control that Twitter has had over information, and the company's influence it has had in supporting the domestic and global political and economic agenda.
As such, the sentiment tide has turned against Elon.  Not only has he been attacked personally, there is an attack on the Tesla share price.  The stock has been cut in half in just six weeks.  That's half a trillion dollars in value, evaporated.
Sure, the high valuation big tech stocks have all been taken apart this year, with the regime shift in monetary policy (i.e. a new rising interest rate cycle).  
But Tesla carries some bigger risk. 
Clearly, there is political opposition to Elon's Twitter deal.  And if Tesla's stock is being used as a tool, to prohibit the takeover (i.e. to make him poorer), then the S&P 500 — the broader market is at risk. 
Remember, Tesla is the fourth largest component of the market cap weighted S&P 500 index (the world's barometer of economic health).
That said, the hair cut Musk has already taken to his net worth, has made the affordability of the Twitter deal questionable.
Something to keep an eye on.