Some have argued, however, that what differentiates expensive valuations from a bubble is behaviour. Jeremy Grantham, co-founder of US investment firm GMO, says that what true investment bubbles have in common is a mania on the part of market participants and a sense that if people would only jump on board, “Everybody Ought to be Rich.” With that in mind, lets look at a few examples of speculative behaviour that suggest this is a true bubble.
Tesla has risen some 685% in 2020. In an excellent new paper by Rob Arnott, the author demonstrates how implausible the assumptions baked in to Tesla’s $608bn valuation are.
‘What else could we buy with $608 billion? Let’s consider the Electronic Vehicle (EV) market. Renault-Nissan, Volkswagen, and Hyundai-Kia are the second, third, and fourth largest EV producers with 13%, 11%, and 8%, respectively, of EV market share.6 Combined, these three organizations are responsible for 32% of EV market share, about 10% larger than Tesla (and growing roughly as fast), but together are valued at $172bn, barely one-fourth of Tesla’s value. Of course, these entities produce a lot more than just electric vehicles. The equivalent of Tesla’s current valuation can buy not only all of the electric vehicles these three organizations sell (actually 10% more than Tesla produces), but also about 27m of the non-electric vehicles they sell each year, close to 60 times Tesla’s likely 2020 EV sales, with $436bn to spare!’