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In recent weeks, Tesla shares have taken on a rather bitcoin-ish personality.

Aly Song/Reuters

Elon Musk is a man of many talents, but who knew that one of them was electronic house music? His track, which he called Don’t Doubt ur Vibe, broke into SoundCloud’s global top 10 last week.

Mr. Musk, the founder and chief executive of Tesla and SpaceX, has never doubted his own vibe, even if others have. Only about a year ago, Tesla’s obituary was being written and some of the world’s most formidable short sellers – among them Crispin Odey and David Einhorn – were ready to cash in. To their delight, the electric car company was losing money on every machine it sold and burning horrendous amounts of cash. The Model 3, the relatively cheap product that was to launch Tesla into the mass market, was off to a slow start.

Adding to investors’ anxiety was Mr. Musk’s increasingly eccentric behaviour. You don’t often spot billionaire CEOs smoking dope in public, but that’s exactly what he did, lighting up on Joe Rogan’s podcast.

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Today, we wouldn’t begrudge Mr. Musk a celebratory joint or two.

In recent weeks, Tesla shares have taken on a rather bitcoin-ish personality. The shares, boosted by a rare quarterly profit and suddenly strong demand for the Model 3, hit US$961 earlier last week, up five-fold since June, making the company worth more than the combined value of General Motors, Ford and Fiat Chrysler. The shares fell sharply on Wednesday to US$735. By Friday, Tesla’s equity value, at US$135-billion, was still a wonder to behold.

We remind you that Tesla has never made an annual profit, although it has made money in the past two quarters, supported heftily, it should be noted, by the sale of regulatory zero-emissions credits to other auto makers – essentially a government subsidy (In the past quarter, Tesla’s credits income was US$133-million). Last year, it sold only 367,000 vehicles. GM alone sold 7.7 million vehicles – 21 times more than Tesla.

I will admit that I was just as surprised as anyone by Tesla’s surge. In late 2019, after the company reported a third-quarter profit and a surprisingly fat dollop of free cash flow, I wrote that, “One blowout quarter doesn’t mean Tesla’s safe.” While the company is certainly in better shape than it was a year ago, I am sticking with my view that its future is far from secured.

Let’s start with competition. Unlike the Japanese, Tesla skipped the gasoline engine and battery combo and went with battery-only cars. At first, the German and Japanese competitors thought Mr. Musk was nuts to build his business on pure-electric cars, all the more so since battery technology was making only marginal improvements every year. Range anxiety helped to keep the vast majority of car buyers out of the electric-car market.

But Tesla’s cars eventually reached the stage where range anxiety diminished somewhat. Sales – and, crucially, the share price – took off. Now that relatively puny Tesla is worth almost 40 per cent more than mighty Volkswagen, the Germans, the French, the Italians, the South Koreans and the Japanese are scrambling to build competing products.

VW alone plans to roll out 75 new electric models and 60 hybrids in the next decade. Tesla’s market share is bound to fall, along with profit margins, as the competition heats up. Think Netflix. It virtually owned the streaming market until a year or so ago. Today, the heavily indebted company is fighting with Apple, Amazon Prime and Disney for eyeballs, and Comcast and AT&T are about to get into the game. Netflix shares peaked in mid-2018 and have struggled to find momentum ever since.

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It’s also premature to say electric cars are on the verge of a market breakthrough. They’re still crazy expensive and remain the playthings of the rich. Even the cheapest Tesla, the Model 3, starts at about US$40,000 and can reach US$60,000 pretty fast. Small wonder that the electric car market share remains minuscule.

Then there’s the myth that electric cars are environmentally friendly. These cars require enormous amounts of cobalt, copper and nickel. Demand for these minerals, and others, is so great that undersea mining seems inevitable and is being tested. Imagine the environmental destruction that will cause. Meanwhile, no one has figured out how to dispose of the spent car batteries or how to recharge lots of electric cars at once. More coal-fired generating plants?

A bigger constraint on the growth of electric cars is that they are still cars. Cities everywhere are at peak car capacity and don’t want any more cars of any kind. More and more cities are restricting or banning cars from their centres. Electric cars work best in cities because cities have the most charging points and the shortest travel distances. But enlightened cities don’t want them; they want public transportation and bicycles.

To be sure, sales of electric cars will keep rising. But reaching the point where they replace regular cars will require technological, geological and urban planning breakthroughs that could be many years off. Tesla is trading as if these breakthroughs have already been made. Mr. Musk is a pioneer and congratulations to him for humbling the traditional car companies. He is not a miracle worker. Tesla has yet to earn its eye-popping market value.

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