About that 2017 Tesla bubble

There are times when the claims of bubble proponents becomes so far-fetched that you wonder if it’s all just a spoof. Bloomberg provides a recent example:

Nvidia Corp.’s rise is captivating the stock market and driving the S&P 500 Index to new highs. But it also raises cautionary reminders of another investor darling that soared on dreams of a technological transformation, only to tumble back to earth when those hopes turned to disappointment.

That stock belongs to Tesla Inc., which sparked its own mania in 2017 as investors bet that electric vehicles were going to take over the world.

Yes, shed a tear for those foolish investors that bought Tesla during its 2017 stock “mania”.

I’m not sure which is more embarrassing, the fact that most economists believe in bubbles, or the fact that most economists seem to believe that interest rates show the stance of monetary policy.



24 Responses to “About that 2017 Tesla bubble”

  1. Gravatar of Lizard Man Lizard Man
    4. March 2024 at 14:01

    I wouldn’t think that an individual asset would be in a bubble. But I think that asset classes can form bubbles.

    What was the NPV of the asset class’ cash flows excluding the NPV of the expected sales price of the asset class? If the current NPV of the class’ cash flows is dominated by the NPV of the expected sale price more so than other assets, it is a bubble. Granted, I don’t know how you would measure that. But it is definitely the case that dumb money exists, and that enough of it exists for people to buy into an asset class without even thinking if the asset class will ever have a risk adjusted rate of return comparable to or greater than other assets that one could buy. You just need to find the dumb money to find the bubble. Which probably means that you need to look at where ordinary people are placing their money, as opposed to where investment professionals are placing the money they control.

  2. Gravatar of Lizard Man Lizard Man
    4. March 2024 at 14:11

    For example, if people are buying into an asset based on their belief that the return that they will get on the asset is solely from price appreciation without believing, or even thinking about, risk, growth in cash flows, etc., that is an indication of dumb money creating a bubble . And people will tell you that. You can look up interviews from people during housing bubbles, and they won’t mention anything about rent vs buy comparisons. They talked about how they wanted to buy an asset that had been appreciating in value and they thought would continue to appreciate in value without having put any thought into what would happen with rents. They didn’t talk about how they expected the risk adjusted rate of return on the house they bought would beat a diversified portfolio of securities (though there might have been people in China who did in some way consider that, as they didn’t really trust Chinese capital markets, which is a sound enough judgment in my opinion.)

  3. Gravatar of David R. Henderson David R. Henderson
    4. March 2024 at 14:33

    You write:
    I’m not sure which is more embarrassing, the fact that most economists believe in bubbles, or the fact that most economists seem to believe that interest rates show the stance of monetary policy.

    That’s a tough call. Both are embarrassing. The SF Fed refused to release a talk I gave there because I challenged the Fed’s ability to identify a bubble in advance. In Q&A, Glenn Rudebusch was particularly nasty.

  4. Gravatar of ssumner ssumner
    4. March 2024 at 15:31

    Lizard, “during housing bubbles”

    What housing bubble? Kevin Erdmann showed that 2006 wasn’t a bubble.

    David, They don’t like to be challenged.

  5. Gravatar of A A
    4. March 2024 at 17:40

    I haven’t read much introspective updating from the folks who blamed housing and stock prices on zero interest rate policy.

  6. Gravatar of ssumner ssumner
    4. March 2024 at 17:45

    A, Good point.

  7. Gravatar of Jeff Jeff
    4. March 2024 at 18:51

    “folks who blamed housing and stock prices on zero interest rate policy”

    Let’s be real here….the markets are priced on the assumption that we still have de facto ZIRP or NIRP. The rate hikes were but a temporary bluff and everyone assumes that anything other than substantially negative real returns on long-term US government debt is politically impossible regardless of who is in power.

    I would love to be proven wrong.

  8. Gravatar of Ken P Ken P
    4. March 2024 at 20:44

    Tesla’s Model Y was the number one car in global sales last year, which may not be taking over world but is directionally correct. Total cars sold is up 18x since 2017 and 2023 sales are up 38% over 2022. It looks to me like the market made a good prediction. Now it seems to be predicting a bumpy road.

  9. Gravatar of William Peden William Peden
    5. March 2024 at 04:19


    For those curious, here’s one of your posts (with links to other posts) on that talk (I think the right one?) in 2014: https://www.econlib.org/archives/2016/02/the_shrewd_san.html

  10. Gravatar of Ricardo Ricardo
    5. March 2024 at 04:23



    Yes. Let’s all print trillions of dollars, go on a spending spree, then call that growth. You have the most amazing logic. I’m going to spend 100,000 dollars on my credit card, then claim I’m rich.


    As I said, the modern economists are the dumbest people after the social justice foot soldiers in our gender departments.

    We’re in a bubble bigger than 1929, so don’t be the last one holding fiat.

    And don’t buy bitcoin ETF’s, or Gold ETF’s because you don’t actually own them. It’s just paper. Buy real gold or store bitcoin on your own hard drive.

  11. Gravatar of Student Student
    5. March 2024 at 06:53

    Ricardo, then put your money where your mouth is and short it and get rich… since you are so sure.

  12. Gravatar of ssumner ssumner
    5. March 2024 at 09:31


    “Let’s be real here….the markets are priced on the assumption that we still have de facto ZIRP or NIRP. ”

    Not the 30-year Treasury bond market!!

  13. Gravatar of Eharding Eharding
    5. March 2024 at 12:28

    In the long run, everything is a bubble.

  14. Gravatar of agrippa postumus agrippa postumus
    5. March 2024 at 16:09

    1. ignores volume and cumulative volume weighted impact. simple last closing price reveals nothing about who and how many under water if at all from ath.

    2. its an ontological circular argument. there is no bubble because bubbles can’t exist.

    3. does economist manque yet decent movie review sumner put his money on the line?

  15. Gravatar of Solon of the East Solon of the East
    5. March 2024 at 21:12

    If there are bubbles, then there are “reverse bubbles” or temporary depressions in the valuation water line.

    For some reason, we don’t get a pundits positing about “reverse bubbles.”

    I think Scott Sumner is right on this one. Making predictions is hard, especially about the future.

    I do wonder about certain collectible items that become very pricey, but throw off no income. And I have been wrong on modern art for several decades in a row.

    I cannot believe anyone will pay $25 million for a print by Andy Warhol. That just has to be a bubble. Right? Well, maybe those prints go for $50 mil soon.

    The NFT blowout does seem bubble-y.

  16. Gravatar of WDC WDC
    5. March 2024 at 21:40

    Right, so Tokyo Imperial Palace valued more than California wasn’t a bubble? Asking for a friend.

  17. Gravatar of ssumner ssumner
    5. March 2024 at 22:23

    agrippa, You said:

    “its an ontological circular argument”

    Do you prefer the argument that it’s a bubble when it goes up in price and then down? That’s Noah Smith’s definition.


    WDC, The palace was not for sale. Believe what you wish to believe, but it’s a completely useless theory.

  18. Gravatar of Tacticus Tacticus
    6. March 2024 at 04:27

    My definition of a bubble, and I’ve said this before, requires it to be fraudulent. In that sense, I would argue Tesla was (is?) a bubble, but Musk was bailed out by Covid, and the US response to it, and the lack of willpower in the US courts to hold him to account.

    Though that then brings up the question of what is fraud? Is it fraud if one believes in one’s endeavour enough? I believe it’s Matt Levine who has said there is a spectrum of fraud and all visionary entrepreneurs are slightly further on it than the average person.

    Regarding interest rates, people seem to finally be realizing that money is not tight, if only because they have no other way to explain the ridiculous recent rise in Bitcoin etc.

  19. Gravatar of Ray Lopez Ray Lopez
    6. March 2024 at 04:38

    Bubbles are real. The drop in price affects people at the time. Echoing Keynes, it doesn’t count if long after a storm passes that you can say the waves are calm at sea. Bubbles are like large “waves” that cause havoc. After all, if you buy and hold an index of stocks, likely you will never experience a ‘crash’ but it’s small comfort to a retiree about to cash out from the stock market just when a market temporarily crashes.

    I found DH’s story interesting. Even to devotees like found in this blog (I believe money is largely neutral except during hyperinflation) the Fed can be negative towards their fans.

  20. Gravatar of Jeff Jeff
    6. March 2024 at 07:25

    > I do wonder about certain collectible items that become very pricey, but throw off no income. And I have been wrong on modern art for several decades in a row.

    My understanding is that the modern art market basically exists to generate tax write-offs. I was acquainted with someone who owned an art gallery at one point. What I learned is that there a very well-defined hierarchy of galleries, for example, one tier for “entry-level” artists, one for “mid-career”, another for “established”, etc. The prices at each tier are set at defined levels as well, something like an order of magnitude or two between each step. Only a few actual transactions are done in the higher tier galleries, but what that does is establish legitimacy for an appraiser to claim that all pieces by an artist whose works are displayed at that tier can be valued at that same level.

    So basically you can purchase a piece of art in an “entry-level” gallery for $5000 or so and then, a few years later, provided everything goes according to plan and that artist’s work is now displayed in a higher tier gallery, you can donate it to a museum and take a tax deduction of $500,000 or $1M or whatever.

    I heard of a recent book on modern art that mentioned a story of a younger artist who was panicked when he learned that one of his pieces had sold for “too much money too soon”. The book just presented the story as if to say “Wow, how crazy is modern art lol,” but it made perfect sense if you think that an artist might worried about such a thing because it means he is “stepping out of line” and endangering his reputation as someone who can generate collectibles of dialed-in nominal value.

    > Not the 30-year Treasury bond market!!

    I see your point but I feel like it is just really hard to take the treasury/TIPS markets seriously at this point. Seems like it could be that zero real interest plus some form of credit risk is basically what is generating the numbers now, since that is what people assume would roughly obtain in a grand political settlement of the debt. I don’t know.

  21. Gravatar of Lizard Man Lizard Man
    6. March 2024 at 08:32

    @ Agrippa

    I continue to maintain that a word should exist that describes an asset class when it when the current price is determined by the expectation of appreciation and no concern or regard for future cash flows that the asset class generates outside of price appreciation, and that bubble is the best word for that. I know that in common parlance people just use it to mean an investment that they personally believe is undervalued. But I do think that there should be technical jargon for the phenomenon I am describing, and that the phenomenon does exist. Under my proposed definition, it would mean that most of the time that people call something a bubble it is not a bubble, just differing expectations on future cash flows less cash flows due to price appreciation. But other things, like Chinese real estate, would be a bubble even if it was rational for various reasons to believe that the price appreciation would continue no matter the lack of underlying cash flows.

  22. Gravatar of Tacticus Tacticus
    6. March 2024 at 10:12

    Lizard Man, we could call it a hot potato…

    But, I don’t know. I think there needs to be a difference between things like art, wine, other collectibles and Bitcoin/crypto. Art, wine, etc have no cash flows, but they are valued for their own subjective sake, versus crypto which is only valued for its ‘scarcity’ to sell to others later.

  23. Gravatar of Lizard Man Lizard Man
    6. March 2024 at 10:35

    I think that the market for collectibles serves as a good benchmark for if an asset class meets the criteria for the thing that I am talking about. If an asset class that is normally or historically had been bought and sold based on their cash flows starts to look like it is being bought and sold like collectibles, that is definitely a sign that something unusual is going on. Chinese housing is weird because there are so few options for people in China to invest their money, they have the weird household registration system in which sometimes buying and holding property above a certain value can get you access to subsidized government services in some cities, property was used as a way to replace bride prices when that was technically outlawed, etc. All of which things, I think, made international investors so wary as to not even desire China to let them invest in residential real estate.

  24. Gravatar of ssumner ssumner
    6. March 2024 at 12:01

    Jeff, It’s a big mistake not to take markets seriously. I’d encourage you to rethink your theory.

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