Tesla has caught my eye today. It has become the world’s most valuable carmaker despite never having made a profit. Tesla overtook Toyota (pun intended – sorry) with a valuation of $209 billion, earned partly on the back of growth in sales the company’s range of electric cars, and partly on the back of Elon Musk’s showmanship / marijuana smoking.
It seems a bit mad, doesn’t it?
Growth businesses with high valuations and not profit are nothing new, of course – they are not uncommon in the gambling industry where I work – but when you consider the sheer scale of the numbers involved, it all feels a bit wrong.
After some quick googling I found a really interesting article about valuable but loss-making companies on cnbc.com. It would seem that of the companies publicly listed in the USA in 2019, 76% were unprofitable in the preceding year before the initial IPO. The last time this figure was higher was in 2000, the year of the dot.com bubble bursting.
Time will tell about Tesla of course, but could some troubled times be on the way for the stock markets? If we’ve got a lot of over-valued companies out there, it feels like there may well be some kind of correction on its way. Might be time to buckle up and enjoy the ride!