"Hype And Faith Underpin Bitcoin And Tesla Stocks"

Paul Krugman compared Tesla to bitcoin, saying that hype and faith underpin stocks in both assets.
The Nobel Prize-winning economist argued that Tesla lacks the network effects of Apple and Microsoft.
Krugman took aim at Elon Musk, joking that he wouldn’t trust the controversial Tesla CEO to feed his cat.
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Paul Krugman compared Tesla’s stock to bitcoin’s crash, saying hype and faith underpin valuations for both assets, and joked that he wouldn’t trust Elon Musk to babysit his cat.

Tesla’s stock soared more than 13 times between the start of 2020 and its November 2021 peak.

However has plummeted 73% since then, cutting the company’s market capitalization of electric vehicles (EVs) from more than $1.2 trillion to less than $350 billion.

Tesla Stock Doesn’t Compare to Big Tech

Krugman, in a New York Times column posted on Tuesday, asked: “Did the Tesla story ever make sense?”

The Nobel Prize-winning economist argued that Tesla is not worth as much as Apple, Microsoft and other big tech companies, since it does not benefit from significant network effects.

Apple has an ecosystem of devices, apps and services for users, while Microsoft Word and Excel remain the default choice for businesses as they are the most familiar and the industry standard, he said.

On the contrary, Tesla faces increasing competition in the electric vehicle sector by automakers such as GM and Ford, and there are no clear network effects of having a Tesla versus a rival car, Krugman said.

Furthermore, he questioned how Tesla will dominate its market and make big profits when the excitement around its products inevitably fades.

“It’s hard to see what would give Tesla a long-term boost in the EV business,” he said.

Faith and hype made Tesla’s stock bubble grow

The economist claimed that a large part of Tesla’s popularity came from the Musk’s perception as a “cool guy”but that image has faded in recent weeks.

He drew a parallel between the hype and breathless faith that fueled Tesla’s stock during the pandemic and bitcoin’s dramatic rise during the same period.

And he noted that the top cryptocurrency has no clear use beyond money laundering, and its price is now being driven by a “hardcore group of true believers.”