Why I Think Tesla Is Over-Valued.

In the last week or so, Tesla hit a market cap of $1 Trillion USD which is a staggering figure.

This means that it is worth more than the combined market cap of the nine largest car manufacturers globally, in the month of October, it added the equivalent of another four Ford Motor Co’s which is incredible, and a testament to Elon Musk. But is it really worth it?

I don’t think so, for a number of reasons. I’ve felt this way for the last year or so, I think the tech is flawed. I’m not going to dwell on the financial side of things here, everyone is doing it. The valuation simply doesn’t stack up when you look at things like production capacity, number of cars sold etc.

The bullet points for my thinking are;

  • The battery materials are finite, there is simply not enough lithium in the world to replace all of the internal combustion engines with battery. And the way that the lithium is obtained is a huge environmental concern.
  • Not only are battery materials finite, they are nearly damned impossible to recycle currently. There are huge environmental concerns.
  • Competition from China is hotting up, they are catching up fast, their tech is good, their quality is better, and their price point will be lower. Tesla are renowned as being expensive (the margins are huge), and their build quality is renowned for being sub par.
  • And finally, and this is the final nail in the coffin for that gravity defying valuation, internal combustion hydrogen is the way forward, not battery. The energy for hydrogen can be generated using renewables and the only thing that comes out of the exhaust pipe is steam…. no getting kids to mine lithium, no piles of unrecyclable batteries, no brainer.

I’ve long discussed with friends (Steve C, Russ, I’m talking about you) about the benefits of hydrogen as a replacement for fossil fuels. I think maybe even as far back as 2008. Back then, even we identified that it would make sense for renewables to be used for creating hydrogen. All that is required is electricity and water. Imagine for example the areas of the Middle East and Australia that receive enormous amounts of sun every day, they could be hydrogen producing powerhouses. This could be done with PV arrays (solar panels), and the hydrogen generated stored and shipped. Heck, for the Middle East, this could easily replace oil, the infrastructure is there. And under these PV’s, crops could be grown as these areas are currently inhospitable and dead areas, barely anything grows or lives, but an environment that could sustain agriculture could be created. A double benefit.

With renewables such as solar and wind, one of the biggest issues is the storage of energy generated. With hydrogen, no longer would you require batteries or other cumbersome solutions, you could simply create hydrogen and ship it in a similar way to gas or oil.

Toyota in Japan has just signalled that it is starting to work on hydrogen combustion engines. Currently they are big into hydrogen fuel cell cars; these are cars that use hydrogen to generate electricity to power the motors. The problem with these is that they are extremely expensive. Their move is an interesting and significant one and I think it signals the start of a change away from fuel cell and battery driven vehicles. At this point Tesla should sit up and take note, very quickly, as should their investors.

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