Is Tesla the Meme Stock of Yesteryear?

For years, Tesla stock charged ever-higher despite weak operating results. So far in 2021, that pattern has reversed itself.

Second-quarter results from Elon Musk’s auto maker were the company’s strongest on record. Tesla booked US$11.9 billion in sales and earned $1.1 billion in quarterly profit according to generally accepted accounting principles. Both figures topped analyst expectations. And while Tesla sold $354 million of regulatory credits to rivals, the auto maker would have easily finished the quarter in the black without them. Results were flattered by Tesla receiving certain goods and services from suppliers for which it hadn’t yet been charged, but Mr. Musk still deserves credit for that strong performance.

Tesla managed to deliver more than 200,000 cars in the quarter despite the global semiconductor shortage. And the falling price of bitcoin, which the auto maker carries on its balance sheet for some reason, only resulted in a $23 million hit to the bottom line.

But while Tesla’s actual business has lately come of age, the stock isn’t playing along. It was slightly higher on Tuesday morning, had dropped 9% so far this year and is down by more than a fifth over the past six months, lagging bigger rivals like Ford and General Motors. Meme stock aficionados, who couldn’t get enough of Tesla until recently, seem to have moved on to cryptocurrencies, brick-and-mortar video-game retailers and movie-theatre chains.

One reason: Tesla’s excellent results underscore how disconnected its valuation is from business reality. Tesla has earned $1.41 a share so far this year. If the auto maker continues to shine in 2021, it might earn $4 a share on a GAAP basis. At the current stock price, the company is valued at more than 150 times that still-hypothetical earnings figure—orders of magnitude higher than any comparable rival.

And the news wasn’t entirely positive on Monday: Tesla said its semitrailer truck, which Mr. Musk first showed to the public in 2017, wouldn’t begin production until next year. Given Tesla’s decade-long track record of overpromising on timelines, investors shouldn’t be expecting even this new guidance to hold up.

Meanwhile, rivals such as Ford, General Motors and Volkswagen are developing electric offerings of their own. And startups, including Lucid Motors, give investors more options to speculate on an electrified future.

Tesla seems to have put its most turbulent days behind it. That doesn’t preclude a bumpy ride for its shareholders in the future.

China’s economic recovery isn’t gaining the momentum money managers are awaiting.

Data from China Beige Book show that the economic green shoots glimpsed in August didn’t sprout further in September. Job growth and consumer spending faltered, while orders for exports came in at the lowest level since March, according to a monthly flash survey of more than 1,300 companies the independent research firm released Thursday evening.

Consumers’ initial revenge spending after Covid restrictions eased could be waning, the results indicate, with the biggest pullbacks in food and luxury items. While travel remains a bright spot ahead of the country’s Mid-Autumn Festival, hospitality firms and chain restaurants saw a sharp decline in sales, according to the survey.

And although policy makers have shown their willingness to stabilise the property market, the data showed another month of slower sales and lower prices in both the residential and commercial sectors.

Even more troubling are the continued problems at Evergrande Group, which has scuttled a plan to restructure itself, raising the risk of a liquidation that could further destabilise the property market and hit confidence about the economy. The embattled developer said it was notified that the company’s chairman Hui Ka Yan, who is under police watch, is suspected of committing criminal offences.

Nicole Kornitzer, who manages the $750 million Buffalo International Fund (ticker: BUIIX), worries about a “recession of expectations” as confidence continues to take a hit, discouraging people and businesses from spending. Kornitzer has only a fraction of the fund’s assets in China at the moment.

Before allocating more to China, Kornitzer said, she needs to see at least a couple quarters of improvement in spending, with consumption broadening beyond travel and dining out. Signs of stabilisation in the housing market would be encouraging as well, she said.

She isn’t alone in her concern about spending. Vivian Lin Thurston, manager for William Blair’s emerging markets and China strategies, said confidence among both consumers and small- and medium-enterprises is still suffering.

“Everyone is still out and about but they don’t buy as much or buy lower-priced goods so retail sales aren’t recovering as strongly and lower-income consumers are still under pressure because their employment and income aren’t back to pre-COVID levels,” said Thurston, who just returned from a visit to China.

“A lot of small- and medium- enterprises are struggling to stay afloat and are definitely taking a wait-and-see approach on whether they can expand. A lot went out of business during Covid and aren’t back yet. So far the stimulus measures have been anemic.”

Beijing needs to do more, especially to stabilise the property sector, Thurston said. The view on the ground is that more help could come in the fourth quarter—or once the Federal Reserve is done raising rates.

The fact that the Fed is raising rates while Beijing is cutting them is already putting pressure on the renminbi. If policy makers in China wait until the Fed is done, that would alleviate one source of pressure before their fiscal stimulus adds its own.

Is Tesla the Meme Stock of Yesteryear?

Just as Elon Musk’s firm begins to look fundamentally more solid, investors have moved on to other speculative objects.