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RIVN & TSLA Are Overvalued — Buy Anyway

Join me as I take a very shallow dive into the economics of power, poke fun at a modern dragon, and bet on black.

Amazon-backed EV builder Rivian (RIVN) held its initial public offering (IPO) just a few days ago. That day’s trading closed at $100.73 per share, giving Rivian a staggering $86 billion valuation. This comes less than a month after the market cap of Tesla (TSLA), another electric car maker, rocketed past the trillion-dollar mark. It is by far the most valuable car brand on Earth. By any reasonable estimation, anything driven by “fundamentals,” these valuations might seem laughable — but we live in unreasonable times, and the bets being placed here can tell us something. They might even tell us to buy.

Disclaimers and IDK, Tho

but idk tho from Kanye

As the meme suggests, I’m not an economist, stock guru, or finance manager. In fact, you’d probably be better off getting stock tips from a Wendy’s Drive-Thru than from one of my articles. What I am, on good days, is like a philosophy guy. I think about stuff — in a positivistic sense. I am someone, in other words, who does not know about the kinds of things you’d want someone to know about when you take their stock advice.

That said, I’ve spent a good long time thinking about the good guys and the bad guys of the world, and let me tell you that I have a very, very hard time reconciling the greed and money-hoarding of financial dragons like Jeff Bezos and Elon Musk with anything approaching “goodness,” regardless of their stated missions to make the Earth a better place or whatever.

I maintain that anyone who holds more wealth than Smaug – a fictional dragon who sleeps on a literal (figurative) mountain of gold – is a great candidate for that “bad guy” label. I also maintain that bad guys usually win in real life. As such, I’m betting on the dark side.

RIVN & TSLA Not About Rivian & Tesla

It’s important to understand something about market caps and valuations, and that’s that the market cap isn’t the value of the company – not really. It’s not even the price of the company, in fact. What it is, though, is the number you get when you multiply the last price someone was willing to pay for a single share and the total number of shares there are, and these are very nebulous things.

Similarly, Rivian’s paperwork indicated that it generated $0 to $1 million in sales against net losses of between $1.2–$1.3 billion in the quarter that ended Sept. 30, 2021 (emphasis mine). Here is a company that has sold, for practical purposes, nothing, yet the demand for a piece of the company is so high that people are (or, they were, anyway) willing to spend over $100 to own a single share of RIVN — and that’s the key phrase here: demand for a piece of the company.

Demand is created by many things, and — philosophically and linguistically, at least — demand is not necessarily reflective of intrinsic value. If you’ve ever read The Wealth of Nations or pondered the diamond-water paradox, then I’m not telling you anything you don’t already know, but for those of you who haven’t, I’ll try to explain the paradox here.

Many economists have struggled with their understanding of value and price, and some have tried to tie those ideas of value and price to utility. That is to say that something which is more useful, or necessary, has more value than something which is less useful, and not necessary. On its own, that seems like a pretty reasonable statement that few would find fault with, and the only real problem with the notion that utility informs value informs price is the fact that it has absolutely nothing to do with reality — and one of the most common things used to poke holes in blast cannonballs through that notion is the diamond-water paradox.

Water, as you may already know, has tons of uses — from generating tidal electricity to generally being a fun place to take your boat. Water is also necessary for life, creating a constant demand (as long as anyone or anything is still alive, anyway). Diamonds — especially large, clear, carefully cut diamonds — don’t have many uses at all. You can make jewelry out of them, sure, but not much else. What’s more, you most certainly can live without sparkly diamonds. And yet … the diamonds we don’t need are far more expensive than the water we do need.

Similarly, a company like GM has been profitably building cars and trucks for over 100 years. It has a vast dealer network, legions of devoted fans, many decades of entrenched industry knowledge (translation: people know how to work on them), brand loyalty, and billions upon billions of dollars in sales. Annually. GM employs, directly or indirectly, millions of people — many millions more than either Rivian or Tesla — and the sudden closing of GM would lead to certain, unquestioned economic disaster, sending global stock markets into a tailspin. In contrast, the shuttering of Rivian might move the Dow, or it might not. It’s hard to know.

Despite all of that, people would rather own a share of RIVN or TSLA than century-old GM — which speaks to something entirely different from fundamentals or utility.

A Trillion-Dollar TSLA is About Power

Image courtesy of Tesla.

Recently (as these things go), economists named Jonathan Nitzan and Shimshon Bichler put forward a power theory of value. That theory is based on the idea that market capitalization on the stock market is not an indicator of “productive capacity” or “fictitious capital,” but is instead how capitalists quantify their political power.

There’s quite a lot to go into here, and probably a PhD or two to be earned by those of you who really want to get into neoclassical and Marxist economics, debate the famous M → C → M′ formula, and explore the foolhardiness of dismissing the stock market as “fictitious.” The part that’s relevant to us as we discuss the “value” of RIVN and TSLA is the following: capitalists want more.

“Capitalists want more money. On this, all political economists agree,” writes Blair Fix, in Economics from the Top Down. “When you think like Marx (who held a utility or labor theory of value), it seems that the accumulation of money hinges on the accumulation of ‘real’ capital. But this is an illusion. Physical property isn’t necessary. All that’s needed is property rights.”

I’ll leave the explanation of Fix to Fix:

“To be fair to Marx, in the 19th century the distinction between ‘property’ and ‘property rights’ was difficult to see. That’s because the things that were owned (railroads, steel mills, etc.) were tangible. It was easy to conclude that owning ‘things’ is what causes capitalist income. But that’s a mistake. It’s actually property rights that matter.

“Today, this fact is more obvious. To understand the importance of property rights, ask yourself — what does a patent troll own? A patent troll, if you’re not familiar, is someone who buys a patent for a product that they neither invented nor produce. The patent troll owns nothing tangible. Yet they still earn income. How? By enforcing the patent … their property right.”

The patent is one example of tangible rights. The share is another, and owning a share of a company is, in many ways, like having rights to a patent or idea. It means that you can get a share of the win, in one sense. Owning a share gets you a seat at the table, too — as activist organizations like PETA have effectively learned — and being heard is power. The vote you get as a shareholder is power, too.

And the people who don’t own shares? They’re out, unheard, and part of the losing team, and that’s what property rights boil down to in the end — the power to exclude.

What will people pay for that power? For the ability to say that they’re long TSLA, and to bask in the sort of glory that can only come from being right and transforming a century-old industry filled with established Goliaths by betting on a plucky, young David?

They’ll pay a lot. And, if they can put some extra money in their pockets along the way and make up a fun name for themselves — something goofy, like “Teslanaire” — so much the better.

Betting Big on RIVN and TSLA

Image courtesy of Rivian.

When most people buy diamonds — at least in the US — they’re doing it for love. “I love you this much,” says the huge diamond that represents two months’ salary. “I love you this much,” says the tiny diamond that represents about 2 days’ salary. That’s how we’re sold on it, anyway, and how a great many people still believe it goes.

When people buy TSLA (or RIVN or LCID or XPEV, for that matter), they’re often doing that for something like love, too. Sure, they may make some money along the way, but however fictional value may or may not be, one thing that is definitely not real is money, and the guys making billions know that. The money isn’t about the money, the money is about keeping score, and buying into TSLA is betting that Elon is going to keep winning.

Say what you want about the guy (I know I have), you can’t deny he’s a winner — and he doesn’t seem like he’s going to start losing any time soon. Ditto Lex Luthor Jeff Bezos, who doesn’t seem to be suffering greatly from all the “supply chain shortages” his competitors keep talking about. Neither is Tesla, for that matter, and that’s what I’m talking about.

Good for the planet? Bad for the labor movement? Short on fundamentals? None of that matters. All hail the dark side. Long live Bezos. Long TSLA.

 
 
 
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Written By

I've been involved in motorsports and tuning since 1997, and have been a part of the Important Media Network since 2008. You can find me here, working on my Volvo fansite, riding a motorcycle around Chicago, or chasing my kids around Oak Park.

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