“The stock market is a voting machine in the short run, but a weighing machine in the long run.” — Benjamin Graham
Few people have captured the world’s imagination quite like Elon Musk.
He has become far more than a businessman. He is a brand, a celebrity, an engineer, a showman and, for many, something approaching a cult figure. Mention his name and opinions quickly become polarised. To his supporters he is the greatest entrepreneur of modern times. To his critics he is the master salesman of ideas that may never become reality.
The question for investors is much simpler.
Is Musk Mania justified?
A Visionary Without Question
Let’s begin with what is difficult to dispute.
Elon Musk is undoubtedly one of the greatest visionaries of our generation.
He has challenged industries that many believed were impossible to disrupt.
- Electric vehicles
- Commercial space travel
- Satellite communications
- Artificial intelligence
- Brain-computer interfaces
- Robotics
History is full of entrepreneurs who improved existing businesses.
Very few have attempted to create entirely new industries.
For that, Musk deserves enormous credit.
The world almost certainly has more electric vehicles because of Tesla. Space launch costs have fallen dramatically because of SpaceX. Starlink has brought internet access to some of the world’s most remote locations.
These are remarkable achievements.
But Vision Is Not the Same as Value
There is, however, an important distinction between building exciting businesses and creating value for shareholders.
Investors do not buy dreams.
Ultimately, they buy future profits.
That distinction is becoming increasingly important.
Today, most of Musk’s businesses generate little or no profit.
SpaceX remains an extraordinary engineering success, but it continues to invest enormous sums into Starship and Starlink. xAI is spending heavily to compete in artificial intelligence. Neuralink remains in the research phase. The Boring Company is still relatively small. X continues to face significant commercial challenges following its acquisition.
The one notable exception is Tesla.
Even then, the picture is more complicated than many investors appreciate.
Tesla’s Profits Are Smaller Than They Appear
Tesla has certainly become a profitable manufacturer.
However, an important contributor to those profits has been the sale of regulatory carbon credits to other car manufacturers.
These credits have generated billions of dollars in revenue over the years.
Without them, Tesla’s reported profits would have been materially lower in several reporting periods.
As traditional manufacturers launch more electric vehicles and require fewer carbon credits, this source of income is likely to become less significant.
That raises an obvious question.
Can Tesla generate sufficiently high profits from selling cars, software and autonomous driving to justify its valuation?
Is Musk Better at Starting Businesses Than Running Them?
Founding a business requires imagination.
Running one requires something different.
It demands relentless operational discipline, capital allocation, cost control and the ability to build management teams that continue delivering year after year.
Musk’s strengths clearly lie in the first category.
He sees opportunities long before others.
He attracts exceptional engineers.
He inspires investors.
He raises enormous amounts of capital.
But can one individual successfully oversee:
- Tesla
- SpaceX
- xAI
- X
- Neuralink
- The Boring Company
while simultaneously commenting on politics, global affairs and social media?
Even the most talented leaders have limited time.
The danger is not that Musk lacks intelligence.
It is that no individual can devote sufficient attention to so many complex businesses simultaneously.
The Berkshire Hathaway Comparison
Perhaps the most interesting comparison is not with another technology company but with Berkshire Hathaway.
Berkshire is hardly glamorous.
It owns railways, insurance companies, utilities, manufacturers and dozens of established businesses.
It rarely dominates headlines.
It makes no promises about colonising Mars.
Yet Berkshire consistently generates tens of billions of dollars in annual operating earnings and substantial free cash flow across a diversified portfolio of profitable businesses.
Its valuation has historically been supported by those earnings.
Tesla, by contrast, has often traded at valuation multiples that imply decades of exceptional growth and profitability.
One business is valued primarily on what it earns today.
The other has often been valued on what investors hope it might earn tomorrow.
Hope can be a powerful force in financial markets.
But hope is not the same as cash flow.
Markets Can Remain Enthusiastic for Longer Than You Expect
One of the hardest lessons in investing is that markets do not always price companies rationally in the short term.
Exciting stories often command extraordinary valuations.
Investors naturally become captivated by charismatic founders with ambitious visions.
Sometimes those visions become reality.
Sometimes they do not.
The difficulty is knowing which is which.
That is why disciplined investors focus on fundamentals rather than headlines.
Will Humans Live on Mars?
Perhaps no idea captures Musk’s ambition more than his vision of building a self-sustaining city on Mars.
It is an extraordinary goal.
If anyone is likely to push humanity further into space, Elon Musk is certainly among the leading candidates.
But extraordinary ambition does not guarantee commercial success.
Building rockets is one challenge.
Creating a permanent, economically viable civilisation on another planet is something entirely different.
It will require technological breakthroughs, enormous financial resources and political cooperation on a scale never previously achieved.
It may happen one day.
It may also remain one of humanity’s greatest aspirations rather than a commercial reality.
Investors should be careful not to confuse inspirational goals with investable cash flows.
Valuation Still Matters
History repeatedly reminds us that even wonderful businesses can become poor investments if purchased at unrealistic valuations.
A company’s share price can drift a long way from its underlying economic value.
Eventually, however, the two tend to converge.
As Benjamin Graham observed, the market may vote in the short term, but in the long run it weighs.
Ultimately, businesses are worth the cash they can generate for their owners.
That principle has not changed.
Final Thoughts
Elon Musk has already secured his place in history.
He is one of the most influential entrepreneurs of the modern era.
He has accelerated technological progress in industries that many thought impossible to change.
None of that is in doubt.
The more difficult question is whether today’s valuations already assume decades of extraordinary success that may prove difficult to achieve.
As investors, it is important to distinguish admiration from analysis.
You can admire a visionary while questioning the price being paid for that vision.
In the end, successful investing is rarely about buying the most exciting story.
It is about buying future cash flows at a sensible price.
Markets may continue rewarding dreams for many years yet.
But eventually, as they always have, earnings have the final say.
Tony Byrne, Managing Director
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*Risk warnings
The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.
