Elon Musk’s Tesla has been struggling financially since its inception and has lost over $1.1 billion in 2018 alone despite a surprise profit in the third quarter. As much as Tesla has been struggling, I just wanted to point out that Tesla’s struggles are occurring during the largest wealth bubble that has ever occurred in America’s history. Tesla is a luxury car company that sells expensive cars to affluent people, the U.S. is responsible for approximately half of Tesla’s sales, and U.S. wealth is artificially inflated and heading for a bust. Simply put, America’s wealth bubble is enabling many more people to buy Tesla automobiles than would ordinarily occur in a non-bubble environment.
As I explained in a recent presentation, U.S. household wealth has surged by approximately $46 trillion or 83% since 2009 to an all-time high of $100.8 trillion. Since 1951, household wealth has averaged 379% of the GDP, while the Dot-com bubble peaked at 429%, the housing bubble topped out at 473%, and the current bubble has inflated household wealth to a record 505% of GDP (see the chart below):
Please watch my presentation “Why U.S. Wealth Is In A Bubble” to learn more:
China accounts for 16% of Tesla’s sales and is the largest market for Tesla automobiles after the United States. China is experiencing a massive credit bubble in which total debt-to-GDP nearly doubled in the past decade from just over 150% to 300%. Debt booms like the one China is currently experiencing help to supercharge the economy in the short run and create scores of new Tesla-buying millionaires and billionaires, but are ultimately doomed as they simply borrow growth from the future. China in the past decade is following a similar trajectory to Japan in the 1980s before its bubble burst (and is still struggling with deflation three decades later).
Norway accounted for 8.2% of Tesla’s sales last year and is the third largest market for Tesla automobiles. Norway is currently experiencing a housing bubble in which housing prices have approximately tripled since 2005. As the U.S experienced in the mid-2000s, housing bubbles create a wealth effect that encourages consumer spending (and splurging on luxuries like Tesla cars).
To summarize, at least three-quarters of Tesla sales come from countries that are currently experiencing unsustainable wealth-boosting bubbles in some form or another. When these bubbles inevitably burst, Tesla’s sales are going to sink and the company will hemorrhage red ink like never before.
We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more.