Elon Musk Is In The Wrong Business

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Elon Musk owns a car company, a solar company, a space exploration company, and has invested in an artificial intelligence company. 

So how could he possibly be in the wrong business?

By not focusing more exclusively on the potentially explosive technology underlying two of the four firms: batteries.

In an interview with Bloomberg's Barry Ritholtz, bond investing guru Jeff Gundlach says Musk should double down on the battery technology that powers Teslas and which allows homeowners to create their own miniature power plants when coupled with solar panels.

"I just think that the battery technology that Tesla has developed is so far ahead of everybody else that it could really have broad uses," Gundlach said. " If I was running GM, or BMW or Ford, I would be open to the idea of just buying the batteries from Tesla."

Ritholtz pointed out that Mercedes' new B class electric vehicle will feature a Tesla battery and drive train, to which Gundlach responded by calling on Musk to make similar overtures to other car manufacturers.

" If I was Elon Musk, I might go to all the other auto companies and say, I'll make you a deal: I'll get out of the car business, but let's set up a long-term deal on you buying my batteries."

But the batteries' potential is even greater than that, Gundlach said:

Who's to say these batteries don't become much more efficient, just like how  the electromagnet, in the 1830s and 1840s, went from something that was of low power, to suddenly there's a guy named [Joseph] Henry that developed a tightly wound electromagnet. And it radically increased the power. If Tesla is able to increase this lithium battery power to a certain point, it could power your house — you could get away from public utilities, you could think of of ubiquitous usage of this battery technology that could have incredible monopolistic profit potential.

Gundlach said he is all-in on the stock, despite its astronomical projected valuation of 191 price-to-earnings ratio according to Bloomberg.

... It's one of the few stocks that's a high-flyer that has incredibly high P/E  that seems to be by a lot of people insanely overvalued. I'm not convinced that it is overvalued, relative to the potential. Now it's high risk — what's the percent chance that it turns into this world-beating, ubiquitous technology, maybe it's 30% or something, but the payoff for that would be incredibly high. So  I'm sort of bullish on Tesla as a speculative investment. 

Gundlach concluded by saying that while he was not a utility investor, traditional utility companies, not to mention gas stations, could face a long-term threat from Tesla's technology.

Tesla had previously said it would begin groundbreaking on the sites of its gigafactories, the manufacturing facilities Musk hopes will double the world's volume of lithium ion batteries, sometime in June. Tesla has not updated its timeline, but Musk recently said the final site selections would be announced "before the end of the year."  

Click here to listen to the full interview »



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