Date
27 June 2017
Tesla founder Elon Musk mentioned “stormy weather in Shortville” in his tweets, apparently mocking the short sellers of his company's shares, which have already surged beyond US$300. Photo: Reuters
Tesla founder Elon Musk mentioned “stormy weather in Shortville” in his tweets, apparently mocking the short sellers of his company's shares, which have already surged beyond US$300. Photo: Reuters

Tesla surge marks misfortune of traditional rivals

The hot topic on Wall Street this week is Tesla’s stock surge to over US$300. (The shares last closed at about US$312.)

Although the electric car maker is hardly making any money, its founder Elon Musk has enough fans to keep the stock charging forward.

Those who consider Tesla as nothing more than a “cult stock” and have actually acted on their views by going short on the stock must be having a very hard time.

Tesla’s current market value of around US$50.95 billion has already surpassed that of Ford (about US$44.80 billion) and General Motors (US$50.89 billion).

Tesla’s rise to become the most valuable US car company reflects both the popularity of the electric car maker as well as the misfortune of its two rivals.

The two traditional auto makers basically adopt a similar business model, and both are facing stagnant sales. Another problem is the ballooning of auto loans and their worsening qualities.

Ford Credit, for instance, has seen an increasing portion of its auto loan assets being classified as subprime.

Meanwhile, second-hand car prices in the United States have been falling, sending ripples even to car leasing plays.

The yield differential between bonds issued by Hertz and the US Treasury of similar tenors has been widening, an evidence that investors are demanding a bigger risk premium for holding the car rental company’s debt.

The full article appeared in the Hong Kong Economic Journal in Chinese on April 8

Translation by Raymond Tsoi with additional reporting

[Chinese version 中文版]

– Contact us at [email protected]

CG

Columnist at the Hong Kong Economic Journal

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