Investors Give Tesla's Elon Musk a Free Pass Compared to What Steve Jobs Faced

 | Jul 07, 2016 | 3:30 PM EDT
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Over the long holiday weekend, electric car maker Tesla (TSLA) announced that it would miss its previously lowered second-quarter guidance for shipments.

On Tuesday, CEO Elon Musk said that he didn't consider a recent crash in Florida of one of its cars while in Autopilot mode that caused a death to be "material" to the company's stock price. Then, Wednesday, we learned that Tesla did mention the Autopilot crash as a risk factor in its prior 10-Q filing. 

And there was Tesla's bid for SolarCity (SCTY) a few weeks ago, which, as I've written before, will substantially help Musk with the more than $400 million in Tesla and SolarCity stock he has pledged against lines of credit from banks he's worked with in the past.

Let's not forget the eight executive departures from Tesla just in 2016. Oh, and the Brexit vote came in the middle of all that news as well.

An anonymous trader I follow on Twitter tweeted this earlier Wednesday: "Crash scandal, SCTY bid, missed deliveries, all the mayhem and still $TSLA is holding up very well."

This is an accurate observation.

There's perhaps no other stock trading today that seems to get the benefit of the doubt from investors than Tesla. The shares are off a little since Sunday's announcement but not by much. Barclays analyst Brian Johnson said this week that Tesla's stock price has always been more about "cult psychology" than "run of the mill financial metrics."

Obviously, the challenge in shorting any stock fueled by "cult psychology" is trying to discern when that faith by the investor base will be shaken. Elon Musk inspires this belief. If Tesla is a cult, he most certainly is the leader.

It's interesting that Musk is compared most often in the press to the late Steve Jobs of Apple (AAPL), yet Jobs didn't get as much favorable treatment by investors as Musk does when you compare the historical price-to-earnings ratios between the companies, as well as the tolerance of losses.

Jobs always had to make money at Apple. From the moment he returned in 1997, when Apple was weeks away from bankruptcy, he had to be cash flow positive. Compare this to the last 10 years of losses at Tesla. Even today, with $4.25 billion in sales last year, Tesla racked up $1 billion in net losses. (Interesting fact, Apple hasn't had less than $4 billion in sales since the 1980s.)

Apple's stock did increase from 1997 until March 2000, but this was mainly due to the general inflation of tech prices as part of the dotcom boom, as well as the new successful lines of iMacs the company put out. Even at the height of dotcom mania in early 2000, Apple's P/E was only 25x, which seems modest compared to Tesla's current 65x forward P/E.

Apple's stock crashed after the dotcom bust and briefly ran losses a few times in the subsequent years. There were moments when its P/E ran negative or was quite high when the company was barely profitable in 2003 and 2004, during the iPod launch period.

By the time Apple became solidly profitable in 2005 and 2006, its P/E had adjusted to the 30x level. In early 2008, after the introduction of the first iPhone, Apple's P/E hit 40x -- still 40% lower than Tesla's current P/E.

In the post-2008 period, although Apple's stock price has gone up 10x, there has always been a complaint from Apple bulls that the stock's P/E is much lower than the market's ratio. The ratio has been consistently dropping. Today, Apple's forward P/E is 10x and it's expected to be 9x next year.

Perhaps investors believe that Musk is far more of a visionary than Jobs was. Perhaps they believe that the market opportunity for Tesla in cars (and now in solar energy) is much bigger than Apple's was at any time since 1997.

I can't think of any governance red flags during the Steve Jobs era at Apple (the one exception being the stock-option backdating issue, which was settled). By contrast, there have been many at Tesla.

Perhaps the Tesla bulls would say that the combination of Musk's brilliance as well as the potential size of the electrical car market more than compensates for a few red flags. My guess is that Steve Jobs would have been envious at the many benefits of the doubt, as well as the acceptance of continual losses, which investors continue to bestow upon Tesla's management and its stock price.

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