Musk is anything from "obvious" in his Tesla presentation to Buffett

Musk is anything from "obvious" in his Tesla presentation to Buffett

Compared to last year's rebound, the EV company's latest stock gain is supported by a totally different story. Value isn't a part of it either.

Musk has shifted the focus of the story to autonomous driving and robotaxis, rather than expectations of significant increase in EV sales based on significant cost savings.

Elon Musk tweeted that he believed it would be a "obvious move" for Warren Buffett to invest in Tesla Inc. With its present cash on hand, Buffett's Berkshire Hathaway Inc. could buy about a third of the electric car maker at the going rate. He has undoubtedly watched this movie in some form previously. To have accomplished that, however, you don't really have to be a nonagenarian investment legend. That will suffice if your memory goes back about a year. Look at this for sure.

Similar to 2023, Tesla had a rough start to 2024. By late April of this year, the stock had dropped 43% to its lowest point since the pandemic-affected summer of 2020, when it previously saw lows in January 2023. As it did a year ago, the stock has seen a significant upswing throughout the previous two weeks.

This déjà vu encounter should be particularly unsettling due of a few minor but significant discrepancies.

The more speculative end of the market had a generally poor quarter leading up to Tesla's decline into 2023; tech stocks and cryptocurrencies both struggled to start the year. It didn't help that Musk sold off a significant portion of his Tesla shares at the same time he acquired Twitter Inc. in a disorderly manner. In particular, indications of a slowdown in the EV industry, like as the company's failed delivery projections for the last quarter of 2022, prompted a selloff in Tesla shares.

This year, there are clear parallels. Tesla released abysmal fourth-quarter figures in January, followed by really horrible first-quarter sales and financials in April. These were the inevitable result of the EV pricing war and impending slowdown, which were first seen in early 2023 and gained momentum over the course of the next year or two.

In each instance, Musk managed to negotiate his way out. During an earnings call in January of last year, the CEO's upbeat remarks ignited Tesla's run in the first half of the year. In response to concerns about growth slowing down, Musk said up front that he want to "allay those worries," pointing out that demand "far exceeds production," hinting at the possibility of 2 million cars being sold that year, and also "retaining the industry's best operating margins." Following this, Tesla had a lengthy, although somewhat meandering, investor day in early March. Among other things, the event unveiled a plan to cut production costs in half, setting the stage for the much-anticipated sub-$30,000 EV. Sales growth had resumed by July, when the stock had almost quadrupled from its January low, albeit at the expense of a significant decline in car prices and profits. A widespread surge in technology equities proved beneficial, with Tesla included in the renowned Magnificent 7.

The goal of growing the car output by 50% annually was dropped in 2024. According to preliminary statistics on Tesla's exports to China in April, which was made public on Tuesday, demand pressure seems to be continuing. Meanwhile, companies like Nvidia Corp. have left Tesla's shares in the dust. The less expensive "Model 2," which was based on innovative manufacturing, has been replaced with a more ambiguous promise of new, less expensive models that combine new and pre-existing platforms. These days, operating margins are worse at a number of Tesla's main rivals. Musk has shifted the focus of the story from expectations of significant cost savings and rapid growth in EV sales to autonomous driving and robotaxis. He has scheduled an unexpected event for August and made a sudden trip to China to obtain preliminary approval to sell Tesla's driver-assistance features there.

Naturally, Tesla has long promised to build a robotaxis that can drive itself and make money. He now discusses the possibility of making money off of the idle processing power in parked cars, a like Uber for datacenters. Tesla's driver-assistance technology just received preliminary certification in Beijing, and part of what makes it noteworthy is how fortunate the timing was. Despite several missed deadlines, it seems that enough investors still believe Musk when he says as much based on the stock's recent surge.

To be clear, even if the terms have completely altered over the last year, they are still taking him at his word. People who were enthusiastic about the impending Tesla robotaxi revolution in early 2023 were also enthusiastic about the impending EV manufacturing revolution. They paid close attention to speakers discussing Tesla's future at last year's analyst day, including former heads of energy engineering and charging infrastructure, Rebecca Tinucci, and Andrew Baglino. Both have now abruptly left, as has the head of investor relations, several other executives, and whole teams of workers, including those who constructed Tesla's renowned charging network. Schumpeterian rebirth, if you will. If that is the case, however, it is a quite different story than the one being told about resilience not so long ago.

Tesla's value is another factor that has changed significantly in the modern era and is surely not lost on Buffett. The stock had an earnings multiple of about 22 times when it reached its lowest point in January 2023. At its lowest point so far this year, the multiple was more than twice that, and it was trading at a premium of more than 200% over the S&P 500. By the way, back in 2008, Berkshire purchased its first share in BYD Co Ltd, a Chinese electric vehicle powerhouse, for a single-digit multiple.

That graphic demonstrates that pessimism never really took hold this year, where it matters, at all, despite the redux of optimism and pessimism. It's not at all clear whether Tesla is currently a value play.