Is Bob Lutz Right?


Yesterday, a former top GM exec failed to convince an array of CNBC talking heads that Tesla is doomed. I wonder if he’s right or not, and whether we have the capacity to judge anymore.

His rationale was cold and direct: The innards of a Tesla aren’t unique or proprietary, and the only way the company can sell cars is by pricing them below cost.

“At this rate, they’ll never get to 2019,” he said.

His hosts stuttered their disbelief, noting Elon Musk’s brilliance as a disruptor, and that so many people believe he can do anything. Everyone agreed to politely disagree when the interview was over.

Earlier in the day on the same channel, a stock analyst predicted that Tesla’s stock will hit $500 per share. Its stock closed up almost 1% at $315.05.

Popular sentiment has never been a good gauge of business value, insomuch as average investors (yours truly included) don’t have a clue what EBITDA means. We’re also greedy and horrible at assessing risk, and expect little more from one another, so investments from tulips to collateralized debit obligations have seemed like good bets…as long as somebody else thinks they are, too.

The purpose of public markets is to enable us to share our expectations, vet them against objectively real criteria and, hopefully, save us from our most egregiously self-destructive investment intentions. This same process is supposed to allocate funds to those companies that evidence the highest likelihood of fulfilling our hopes.

Only today’s markets do nothing of the sort.

We live in an era of magical thinking that looks to technology as the philosopher’s stone that will turn every money-losing company into a blue chip stalwart. The how can be capturing advertising dollars, monetizing users, or building a powerful brand; it really doesn’t matter, as long as the TAM can be measured in the billions.

It can also be a device or digital services breakthrough or, in the case of off-market businesses like Uber, putting its competitors out of business so it can operate as a monopoly.

All that’s required is lots of propaganda about possibilities, and market analysts and TV talking heads who narrate how many people are inspired as proof of its veracity. Since the traditional measures of financial health that Lutz quoted no longer apply, there’s no basis on which to make any informed judgment.

Citing market sentiment as a reliable present tense measure of future business value is like asking my 3rd grade self what I thought Christmas would bring.

The thing is, maybe Tesla pulls the rabbit out of the hat. It’s no slight to say that its appeal is mostly cosmetic — it’s how Lutz’s GM sold cars for over a century, having built the good/better/best ladder of products based on little more than differing tail fins — and it could succeed in building a weird, new car/home electricity hybrid offering that goes far beyond merely selling vehicles. Or it could morph in some new, unexpected direction entirely.

But it’s just as likely that it craps out like Lutz suggests…maybe not in 2019, but as soon as BMW and Lexus come out with equally sexy electric vehicles offered at parity or better prices (with more dealer support, etc.). Or maybe electric cars prove to be an intriguing distraction, and the real transportation solutions involve a combination of fuel sources, more robust public transportation, and virtual reality that displaces much of physical travel altogether.

The market isn’t giving us even the slightest insights into these possible answers, though, when the only question it asks is whether or not we believe in magic.