Tesla mania vs. economic reality

Tesla is now more valuable than the combination of the world’s top seven traditional auto makers, despite only delivering half a million cars this year. 

Why it matters: Anyone searching for evidence that the stock market and the real economy are not the same thing, should look no further.

  • Tesla’s frenzied ride in the capital markets culminated on Monday in the company being the largest entrant ever be included in the S&P 500, the main benchmark stock index. 

Tesla’s true believers are not paying for actual performance, but they are betting on Elon Musk as a visionary and the potential upside in the still nascent electric vehicle market.

  • The merits of that investment thesis diverge greatly from the current state of affairs in the automotive industry, and the broader economy. 

Reality check: The overall equity market’s meteoric rise in the face of a U.S. economy that will end 2020 3% smaller than it started the year, is just the latest example of the economic reality decoupling from stocks.

  • The equity market backdrop is a simple case of buyers needing to “invest in the market you have, and not the one that you want,” says Quincy Krosby, chief market strategist for Prudential Financial. 
  • “It is a market that has been engineered by the liquidity of central banks. … It is surprising how far we’ve come, and that includes Tesla,” Krosby says.