New Yorker Says Musk Is Selling Stock To Avoid Bubble Burst

New Yorker columnist John Cassidy warns that the current mania for electric-vehicle (EV) makers, from Tesla to Lucid to Rivian, is reminiscent of the dot-com boom and bust.

Photo Insert: A caricature of Tesla boss Elon Musk by DonkeyHotey

In his Nov. 22, 2021 piece, Cassidy quoted the counsel of the late economist Paul Samuelson, who said in 1998: “I define a bubble as a situation in which the level of stock prices is high, and the rate of growth of stock prices is high, because of a self-fulfilling prophecy in which people believe the market is going to go up… On that basis, I have to think there has been an element of a bubble in the market for at least two years, possibly longer.”

Samuelson added that he doesn’t know how long a bubble would last. “We have absolutely no theory of the duration of bubbles… Anything that is durable for ‘n’ periods can continue for twice as long.”

Cassidy explained that what is happening to EV stocks is unreal, with the values of stocks of companies that have not produced cars in the scale of Ford and General Motors skyrocketing, reminiscent of what happened in 2000 when the Nasdaq crashed.

“Is history repeating itself? There are some obvious parallels with today’s market: excitement about new technologies; a surge of trading by individual investors; cheap money, thanks to an accommodative Federal Reserve; eye-popping moves in favored stocks; a record number of I.P.O.s.

Earlier this month, Rivian Automotive, an electric-vehicle manufacturer that had yet to report a dollar in revenue, issued stock on the Nasdaq—in one of the biggest IPOs ever.” Yet, the stocks of Ford, General Motors, and other old-line auto companies are also zooming.

The market is not paying much heed to Tesla’s Elon Musk, who is selling his stocks and profiting from his stock options at the same time, who has unloaded 8.2 million shares and gained more than $9-billion in the process. Cassidy says Musk is not liquefying his holdings to pay his tax obligations.

“One theory is that he was already facing a substantial tax hit because he is exercising a big chunk of additional stock options that were granted to him in the past when Tesla’s stock price was much lower. There’s no way to know for sure why Musk is cashing in some of his Tesla stock now, but there is another potentially very simple explanation that shouldn’t be overlooked: it’s the sensible thing to do,” Cassidyy argued.

Underlying Musk’s behavior is the fear that the bubble might burst sooner than later. Cash is king, the maxim goes.

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