Elon Musk’s Tesla (NASDAQ:TSLA) 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.