Why one economist says Elon Musk has turned Tesla into a meme stock

"From the standpoint of Wall Street speculators, it is a bouncing ball in a roulette wheel: a tech-bubble casino play," J. Bradford DeLong wrote.

• Tesla's stock is a "tech-bubble casino play," J. Bradford DeLong wrote for Project Syndicate.
• The economist thinks the firm no longer keeps up with what CEO Elon Musk promises.
• Musk really wants Tesla to be a tech company, but it's an automaker, DeLong said. 

Tesla's market success relies on CEO Elon Musk's ability to keep promising, irrelevant of what the company actually delivers, UC Berkeley economist J. Bradford DeLong thinks.

"From the standpoint of its suppliers, employees, and customers, it is a source of income and production," he said. "And from the standpoint of Wall Street speculators, it is a bouncing ball in a roulette wheel: a tech-bubble casino play."

In an op-ed for Project Syndicate, DeLong noted that Musk used to cheerlead technologies Tesla could deliver on, such as battery developments or electric vehicle breakthroughs. 

But since Musk unlocked the entire worth of his pay package agreed with Tesla in 2018 — which vested when the firm reached a certain market capitalization threshold — he has instead started touting ideas that the company has yet to make good on, DeLong said. That includes full self-driving, humanoid robots, and an artificial intelligence supercomputer.

"For all the current Tesla shareholders planning to offload their holdings in the next couple of years, everything hinges on the company succeeding as a meme stock, and Musk is diligently working toward that goal," DeLong argued. "Since there are virtually no long-term Tesla shareholders, the market does not particularly care that the company lacks a CEO who is trying to build it into an enduring profit-making organization."

For instance, he noted Musk's recent earnings commentary, in which he said that it's a fundamentally wrong framework to consider Tesla an auto company; instead, the CEO called on investors to consider it an AI or robotics firm. 

But to DeLong, that doesn't follow what first-quarter results actually show, as "automotive revenues" made up more than 80% of the company's sales. 

"While car manufacturing does have substantial economies of scale, the value proposition does not come close to the level of infotech, where you can 'write once and run everywhere' at zero marginal cost," he wrote. 

Still, the recent earnings commentary has boosted confidence for many on Wall Street. Before that, many worried as Tesla's growth story took a tumble this year, led by executive controversies and uncertainty around demand for EVs. 

But DeLong isn't the first to compare the manufacturer to a meme stock. Last month, investor Roger McNamee warned that the stock would start trading like a car company if shareholders decided that Musk wasn't central to its narrative.

In a similar vein, short-seller legend Jim Chanos called Tesla a "hopes and dreams" stock, trading more on Musk than fundamentals.