‘Tesla Risk’

I hesitate to weigh in on this, partly because the situation can turn around so quickly, and partly because it’s a magnet for irritable market participants who can’t find a sane middle ground between being completely aggrieved at Tesla’s inclusion in the S&P and being deliriously ecstatic about the company’s meteoric rise.

Tesla, like Bitcoin and Donald Trump, is something about which you can’t speak without irritating someone. It’s too polarizing. It’s impossible to strike an agreeable chord with everyone simultaneously.

But, given its growing heft and what’s sure to be a veritable media frenzy in the event the shares keep falling, it’s worth noting that on Tuesday, Tesla’s shares slumped below levels seen in and around S&P inclusion, before eventually recovering.

Why is this a big deal, beyond the click-appeal?

Well, I hope the answer is obvious. Tesla’s index inclusion means multitudes of everyday people are exposed to the stock’s sometimes dramatic price action, and the company’s decision to buy $1.5 billion in Bitcoin for its balance sheet means the same everyday investors are also indirectly exposed to the vagaries of cryptocurrencies.

This is a potentially perilous setup, as previewed extensively in “Tesla’s Balance Sheet Not Volatile Enough. Needs Bitcoin, Musk Reckons.”

In what some characterized as a kind of Plaxico Burress moment, Musk sent a Saturday tweet hinting that Bitcoin might have overshot to the upside. Although it was probably Janet Yellen who fueled Monday’s swoon in the coin, the media didn’t hesitate to blame Musk, suggesting that he had cost himself $15 billion. Monday’s selloff also cost him the “World’s Richest Man” title, at least temporarily.

A day later, Tesla was still falling and so was Bitcoin.

“Tesla risk” (if you will) is embedded in the portfolios of everyone with a simple S&P 500 index fund. Tesla’s Bitcoin decision means crypto risk is embedded too.

That isn’t ideal, and more than a few critics said as much late last year. Personally (and I’ve said this repeatedly) I don’t think it matters all that much in the grand scheme of things (see the figure below, for example).

Still, the conjuncture described above creates what some might fairly call unnecessary headaches and angst for “regular” folks.

Headaches and angst aren’t the same as migraines and panic attacks, and investing is risky after all. But days like Monday and Tuesday will invariably feed the narrative that says “Tesla risk,” like Bitcoin, shouldn’t be foisted on the masses.

(Tesla recouped losses to close down around 2% Tuesday)


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5 thoughts on “‘Tesla Risk’

  1. I sort of hope that Musk already sold out of Tesla’s Bitcoin position for a cool multi billion USD profit- sure seems easier and cheaper than raising USD through a secondary offering (haha)!

    I am not a fan of Tsla stock and don’t even get me started on what a relatively small impact shifting to electric vehicles has on improving our environmental problem – not saying this shift does not help- but maybe the investment by the Federal government could be better spent (than supporting EVs). We need to address the production of electricity for the electric vehicles to make a meaningful impact.

  2. A “Plaxico Burress moment,” good one. I thought this might have been a reference to a dead, Portuguese economist famous for an equation describing the steepness of rolling top declines that look like the RHS of a y=-x^2 parabola.

    Bitcoin and TSLA articles are fun. But, kind of surprised there’s been no review of ARK and how it could be a potential catalyst a dreaded “doom loop” scenario.

    Let’s hope we get the 20% decline so we can get back to business and ride hot into summer.

    Imagine how boring this would all be if $SPX had only recovered to 3200 at this point. The counts of new subscribers to financial- and market-related web sites would be so much lower.

  3. I’m hesitant to ascribe too much strategy to Elon’s tweets, but I do find it interesting that when things start feeling a little “too rich” (certainly a relative term with TSLA), that he always finds a way to say something that brings it down a peg. Conversely, when the stock seems a little beaten down, he seems to suddenly sound less crazy. Maybe it’s just my imagination, or maybe there’s something to it.

    I also agree with the polarizing comment, and I’m fascinated by what a Rorschach test TSLA seems to be. I’ve seen enough of this to start to wonder if those who have strong opinions about the market in general seems to have a similar feeling about TSLA (either euphoric or apoplectic).

    Back to Bitcoin, if this phenomenon has the likes of Gundlach now telling people to ditch gold and buy Bitcoin then I like the short term prospect (as I’m long Gold and like the odds of fading anyone who follows Gundlach).

NEWSROOM crewneck & prints