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Tesla Better Keep An Eye on the Rearview Mirror

The automotive industry is slack-jawed that Tesla briefly surpassed General Motors in market capitalization Monday.

The former loses money, is deeply indebted, and makes relatively few cars. The latter makes money, wiped clean its balance sheet in the financial crisis, and is the U.S. automotive market share leader. Each is worth in the neighborhood of $50 billion, both valuations validated by public-market investors who can get in and out of the respective stocks with ease. (I note this in contrast, for example, to the $69 billion-or-so value private investors have put on another transportation company, Uber, whose financial results aren’t disclosed publicly.)

What’s most irksome to the car-industry savants is that Tesla isn’t valued on traditional metrics like earnings and cash flow and market penetration. It is valued on hope. That and the genius factor: automotive lifers run General Motors; Elon Musk, the techie with the golden touch, runs Tesla.

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This almost certainly will end badly, at least in the near term, for Tesla’s retail investors. (Retail is a capital-markets euphemism for amateurs who invest in stocks with roughly the same level of knowledge they have when they play blackjack in Vegas.) Tesla has a history of product-launch stumbles. The giants of the car industry are getting their acts together on electric cars and self-driving technology.

There’s no question that Musk has more vision on a bad day than major auto honchos have in a year. But that doesn’t change the fundamental situation that Tesla’s fundamentals don’t warrant such a rich stock price.

One day maybe they will. Until then, look out below.