Why is TSLA so overvalued?
- Why was TSLA more valuable than the next 9 largest car manufacturers around the world earlier this month, despite making up less than 1% of global car sales?
In recent years, popular culture has taken over public markets by way of social media platforms. Memes spread like wildfire across digital mediums like Tiktok, Twitter, Reddit, Instagram, etc. And, as shown by Reddit site r/wallstreetbets last spring, not even the stock market is safe.
Traditionally, a phenomenon known as information cascading largely affects public markets. In “Information Cascades in Financial Markets“, an Investopedia article, Barclay Palmer analyzes these effects, detailing how the public may buy into an investment that contradicts their values based on the belief that those before them had access to information that they themselves do not. Now, the rise of social media has largely increased the influence of these cascades.
The TSLA share price serves as a perfect case study for Palmer’s analysis. Many value investors are puzzled by the stock’s ability to continually rise, but I posit that the stock’s superpowers can be attributed to the social media presence of CEO, Elon Musk, the company’s “green” ideals, and the effect of information cascades. Firstly, CEO and Product Architect of Tesla, Inc, Elon Musk, has built his personal brand on Twitter by breaking professional standards to exchange jokes with his audience and taunt competitors. So large is his influence that he has been accused of market manipulation by commenting on the value of certain assets. By connecting with a younger audience, he has created many Tesla bulls on the basis of his projected relatability. Secondly, now more than ever before, bulls encourage that Tesla, Inc, represents more than its automaker peers. According to InvestorPlace Contributor Dana Blankenhorn, current investors expect that Tesla will dominate the markets that its electric cars create for autonomous vehicle, satellite Internet, and battery technology. By this logic, Tesla is at the forefront of multiple industries and should be valued as such. Lastly, information cascades come into play. Despite traditionalists agreeing with Elon Musk’s tweet that, “Tesla stock price is too high imo“, investors continue to hop on the bandwagon due to the fear of missing out.
In short, be your own person. Before investing in an asset notorious for hype, understand the reason for the stock’s momentum. Avoid getting swept along by the information cascade.