Am I a Tesla-crash dummy? As always, only time will tell

Even so, my pride has been dented and I still don’t know whether I did the right thing in selling, because this stock has bounced back a bit since I did and continues to divide opinions diametrically. Fans claim it is the future, while sceptics say it is all horrible hype. Yes, you guessed: I baled out of Tesla after Goldman Sachs’s devastating analysis helped to knock 20% off the electric-car maker’s share price.

I had been fretting for some time about how Tesla was priced for perfection while traditional car makers looked cheap. For example, Ford sold 6.7m vehicles in 2016, nearly 100 times Tesla’s total of 76,230, but the stock market valuation of the latter eclipsed the former’s in April, when the total value of Tesla shares hit $47.7bn — $2.6bn more than its century-old rival.

Not that this quirk bothered me too much, because the stock market is in business to discount the future, not measure the past. Elon Musk’s Tesla seemed to be a business of tomorrow, which would create wealth out of thin air as renewable energy from wind and solar sources gradually replaces fossil fuels.

Its initial progress was scintillating. After investing at $220 per share in May, 2016, I watched with a mixture of amazement and rising anxiety as the price soared to $387 this summer, like a passenger in a car being driven way too fast.

This would be a good point to confess I make no pretence of understanding lithium ion battery technology — a key factor in electric cars’ progress — but went along for the ride, so to speak. However, I could sense trouble ahead when Danny Fortson, The Sunday Times’s man in Silicon Valley, revealed that Tesla’s target of producing 500,000 cars in 2018 would require 25,000 tons of the silvery white metal — or about 15% of global supply.

All those numbers remain subject to revision, but the rising demand for finite resources is relentless as every leading motor manufacturer races to get ahead with renewable energy, though none has yet gone as far as Volvo — the Swedish manufacturer now owned by Zhejiang Geely of China — which announced this month that all its new cars would be electric or hybrids within two years.

This prompted uncomfortable reflection on the fact that there were 2,000 car makers in America in the early 1900s but only three of them survived that century. Perhaps even more disturbingly, electric cars comprised 38% of the market in 1900 but were blown away when petrol and diesel motors demonstrated they could deliver far more bang for every buck.

Then, amid these historical musings, Goldman slammed on the brakes, cutting its target price for Tesla to $180 on forecasts of “disappointing” sales and profit margins. The market reaction convinced me to sell at $308, with sterling’s shrinkage lifting my net profit to 50%. So, all things considered, I mustn’t grumble.

One factor in my decision was an earlier “green motors” punt on ITM Power, the Sheffield-based hydrogen energy specialist. I invested at 40p in June 2008, after Peter Hargreaves told me he expected to make more money out of ITM than he had at Hargreaves Lansdown, the firm he co-founded that went on to become Britain’s biggest fund platform.

Yes, really. After an increasingly bumpy ride at ITM, I baled out at 56p in March, 2011.

More than six years later, the shares trade at 23p, which just goes to show that even “buy and hold” strategies don’t always work.

As a Londoner born and bred who still needs to breathe the air here, I continue to wish someone would succeed in replacing the infernal combustion engine. But wishing won’t make it so.

That’s why I have recycled the cash from Tesla into topping up an existing holding in Daimler, a much less highly valued but more diversified motor company best known for its Mercedes brand. I also used some of the cash to add to Polar Capital Technology Trust, where professional stock pickers aim to build a balanced portfolio today among the winners of tomorrow.

Here and now, blowing a fuse at Tesla reminds me it’s never too soon to take a profit and that diversification via pooled funds is the simplest way to soften the shocks of stock market investment.

Young face an old lesson
Will younger generations have to discover for themselves the hard way some financial facts of life our parents took for granted? I only ask because official figures show the average Brit now sets aside for a rainy day just 1.7% of earnings — less than a fifth of the long-term average of 9.2% since records began in 1963.

Why should we care? Because it means fewer people will have a financial safeguard against the setbacks life tends to deliver. Or, as I once told a colleague who opined that pensions were “boring” — any fool can easily opt out of saving but it is more difficult to opt out of growing old.

Even shorter-term, risk-free savings can prove their worth. How many of the “have it all now” generation realise that saving up to buy a television over two years will typically mean it costs 25% less than doing so over the same period with a credit card? Yes, I know you will miss a lot of telly but you could always try an improving book. Saving to spend is cheaper than borrowing to buy but most banks have no wish to explain this.

Why? Because they make more money out of credit cards than they do out of savings accounts. It’s not the sort of thing they teach you at school but people who understand compound interest tend to earn it, while those who don’t will pay it.

ian.cowie@sunday-times.co.ukor follow on Twitter @iancowie

Read a breakdown of Ian Cowie’s ‘forever’ fund