Paul Krugman, Nobel laureate in economics, says Tesla may have more in common with bitcoin than you think. He explains that Tesla’s sales have depended in part on the perception that CEO Elon Musk “is a cool guy“, while the price of bitcoin is “supported by a group of true believers“.
Paul Krugman compares Tesla to bitcoin
Paul Krugman, who won the Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel in 2008 for his analysis of the structure of trade and the location of economic activity, published an opinion piece in the New York Times on Tuesday about Tesla, bitcoin and their enormous valuations. He wrote:
Tesla and bitcoin may have more in common than you think.
The economist explains that mega-corporations like Apple, Microsoft and Amazon have maintained their dominance because these companies “benefit from strong network externalities – basically, everyone uses their products because everyone uses their products.“
However, “it is difficult to see what would give Tesla a long-term lock on the electric vehicle market“, describes Paul Krugman. “Where are the powerful network externalities in the electric vehicle sector?” he questioned, noting, “Electric vehicle production simply does not look like a network externalities industry.“
Paul Krugman continues:
It is difficult to explain the huge valuation the market made of Tesla before the factory launch or even its current value.
The Nobel laureate went on to explain “why Tesla was worth so much“. According to him, it is because “investors fell in love with the story of a cool, brilliant innovator, despite the lack of a good argument about how this guy, even if he really was what he seemed, could found a sustainable money machine“. Paul Krugman adds, “Tesla’s sales surely depended, at least in part, on the perception that Musk himself is a cool guy.“
Describing a parallel between Tesla and bitcoin, the Nobel Prize-winning economist detailed:
Despite years of effort, no one has yet been able to find a serious use for crypto-currencies other than money laundering. But the prizes have nevertheless skyrocketed thanks to media hype, and are still supported by a group of true believers.
“Something similar must have happened with Tesla, even though the company actually makes useful things“, concludes Paul Krugman.
Today, Tesla’s stock is down 70% year-to-date, while the price of bitcoin has dropped 65% over the same period.