'Almost a mass psychosis': Tesla's 250% stock rally makes no sense, Bob Lutz says

REUTERS/Mike Blake

Bob Lutz has no idea why Tesla stock has rocketed more than 250% in six months.

Neither do Wall Street’s brightest minds, the auto-industry veteran – who sat on the boards of Ford, Chrysler, and General Motors during his career – said on the BBC Business Daily podcast this week.

“I talked to people at Goldman Sachs, who are usually the world’s greatest experts on explaining stock prices, and they’re now asking me whether I have any idea what the heck is going on with Tesla stock,” he said. “Nobody can explain it, it’s so far beyond any fundamental return that any shareholder could ever expect.”

Elon Musk’s electric-car startup currently boasts a market capitalisation of $US145 billion – dwarfing Ford, Chrysler, and GM’s combined market cap of $US103 billion. Tesla stock is no longer tethered to anything tangible, Lutz argued.

“It’s driven purely by psychology or almost a mass psychosis,” he said, warning the rally won’t last. “Ultimately, the share price responds to financial fundamental reality, and that day will come.”

An overstated growth opportunity

Lutz downplayed the market opportunity for electric vehicles in the interview. The shift from conventional to electric cars is “somewhat of a fiction,” he said, as global demand for them is largely fuelled by government subsidies.

Electric vehicles are expensive and unprofitable to produce, Lutz added, and inconvenient to use due to their long charging times. As a result, he expects them to only account for 15% of the global auto market by 2030.

Despite his bearish view on Tesla’s industry, Lutz praised the automaker’s products. “There’s nothing wrong with the car,” he said. “It is one of the best-driving, best-performing, best-looking premium sedans in the world.”

Fund managers, short-sellers, and even politicians sounded the alarm on Tesla last week after its shares soared by a third in two days. “Watch out Tesla believers,” former presidential candidate Ralph Nader tweeted.