In a chat “Tesla Talk $TSLA @elonmusk hosted by Twitter user StockMKTNewz – Evan, Elon Musk joined and provided more details on what’s going on recently with Tesla stock. Here are the highlights:
Musk reiterates that Tesla will become the most valuable company in the world. The exact market capitalization path will not be known. Time frame will be in a 5 years. He says that during 2008 stock market crash, Broadcom, a strong company got lumped together with the bad companies and suffered a huge decline or 90% loss in stock valuation. Today, Broadcom has recovered. He explains that the stock price can be irrational and warns investors to not purchase stocks on margin loan because of potential for wild movements. He says during these wild periods is when value investors like Warren Buffet make their stock purchases.
Musk promised he will not sell Tesla shares for two more years. He says he had to sell shares to provide a level of safety margin to help Twitter in case economy goes really bad. For now he believes Twitter is stable and no longer heading toward bankruptcy and may be cashflow breakeven soon.
Musk says Tesla team is executing well and there is nothing more he could’ve done to make it any better. New lower priced model is in the works. A new Gigafactory will be announced soon. He claims his Twitter acquisition has not affected Tesla’s execution in any way. He blames the recent Tesla stock decline on the macroeconomic environment. He explained that when risk free bonds approaching yields of 6%, the dynamics of money flows from stocks to bonds.
He believes economy is in a recession and thinks deflation is setting in. He says that big ticket items such as houses and cars are often purchased with debt or loans. Thus when interest rate goes up, the effect is a higher monthly payment or effective price. The laws of supply and demand is price sensitive and demand will drop. Musk’s preference given the choices of keeping price same and maintaining margins with lower units or lowering price, reduce margin to the point of breakeven cash flow or slightly negative earnings but keeping units at high output, he would choice the latter.