NEW YORK ( TheStreet) -- The Street's Anton Wahlman recently wrote How the New York Hedge Funds Lost Their Shirts on Tesla, and within the article Wahlman predicts that in a decade half of the cars sold will be electric.
Wahlman's article attempts to explain why bright minds on Wall Street shorted Tesla (TSLA - Get Report) to the point that short interest rose to nearly one out of two shares. Wahlman is partially correct, but his analysis carries a fundamental flaw as significant as the one he exposes.
In a moment, I will detail the misstep, but let me explain why I read his article first.
I read Wahlman's articles for the same reason you should: he is sharp, does his research and if you don't follow him, you're missing out. But if you hate money, taking the time to click on his follow button isn't worth it.As impressive as Wahlman is, and I do think he is an extraordinary talent, he's human like the rest of us and doesn't always get it right. In the case of his analysis of the electric car market share potential, I think his article wrote out a check that the industry can't cash. Here is the fatal flaw -- " ...Tesla will eventually end up with significant premium electric car competition. One decade from now, at least 50% of all new cars sold will be electric -- possibly 70%. Almost per definition, the other car makers..." I'm the first to admit our world can change dramatically in 10 years. If anyone understands how technology will change our lives it's me. Last week I wrote ( cue the ACDC music) about self-driving semi-trucks in " Leave the Driving to Us Robots. Transportation will change more rapidly than since model Ts began rolling off the assembly line displacing horses. No one knows if electric vehicles will ever reach 50% (much less 70%) of vehicles sold, but if we assume that eventually it will, we can't use sales in Silicon Valley as a predictor of consumer auto trends any more than you can use New York City. In fact, I would argue that Silicon Valley is worse of a predictor than the Big Apple.
Silicon Valley is unique and likely the singularly best location in the entire U.S. to promote Tesla cars. Imagine the potential for Tesla to sell cars is a dining room table. To prevent the table from collapsing, the legs require strength. We know from General Motors (GM - Get Report) what happens when the legs are not as strong as needed.