Why It's Perfectly Normal That Tesla Stock Has Tripled Since Last Summer

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Years ago I tried to work what made the Tesla story so captivating to so many people. The best I could come up with was that it was the world's most visible highwire act. There's Elon, up there on a tightrope, for all the world to see, trying to cross a canyon. Even if you're not invested in the outcome, you can't bring yourself to look away. You want to see whether he'll make it across and be a legend, or plunge to his proverbial death. Tesla has always seemed binary like that: a O or a 1. Or better yet: a $0 or a $1 trillion player. If you have formed an opinion on Tesla you probably think it's going bankrupt -- or that it will be the Apple of automakers. You almost never hear someone say "yeah, Tesla will be one of several decently profitable electric vehicle producers in the future."

Lately its shares have been soaring. It's more than tripled since the 2019 low, and some see it as a sign of a bubble. The must-follow chart reader Helene Meisler says it's the only stock she sees that reminds her of 1999. But if you think of the stock more as a call option, suddenly the chart looks very familiar. An option can swing wildly up and down on relatively modest changes to the underlying asset, as it moves from being out of and into the money. If you think that the two outcomes for Tesla are $0 and $1 trillion, then just a modest improvement in the company's fundamentals (relative to expectations) can produce a massive swing in value. Technically speaking, all stocks have option-like characteristics, with downsides capped at 0, and theoretically infinite upsides. But few companies have such a stark asymmetry like this. Unlike most other $100 billion "tech" companies, there were times in recent years when a default really seemed possible. When Tesla posted a surprise profit last October, that really started to take those fears off the table, and the stock started going nuts.

This isn't to say that the recent gains can be sustained, or that it won't plunge again. But if you consider Tesla's basic characteristics -- extraordinary high capital needs and execution risk, coupled with massive popularity and potential upside -- there's nothing about this chart that looks particularly unusual.