Editor’s note: We wrote this story last week when Tesla passed GM in market cap for the first time — but, because of fluctuations in the market, Tesla has again passed GM in valuation. It may keep happening. Regardless, the rest of our story still holds true.
This week, Tesla passed Ford and General Motors in market capitalization to become the most valuable American carmaker. Tesla’s stock price is on a tear, up nearly 42 percent since the beginning of the year to more than $300 per share, and the company is currently valued around $53 billion.
Tesla is still well behind huge foreign automakers like Daimler and Toyota, but the news of upstart Tesla (which also is making significant investments in non-automotive spaces like solar panels and energy storage) moving past 100-year-old brands like Ford and GM is getting a lot of attention.
The question of why Tesla, which lost $675 million on $7 billion in revenue last year, is worth more than GM (with 2016 revenue of $166.4 billion and net income of $9.43 billion) and Ford (with 2016 sales of $151.8 billion and net income of $4.6 billion) is a complicated one. Elon Musk has told a story of hope around Tesla, convincing many investors that it will change the world and create massive profits down the road.
Still, Tesla investors see promise, especially if they value growth over profit. Over the past four years, the electric car firm has more than tripled its sales, while revenue at both Ford and GM have been largely flat over the same period.
“Elon has managed to tell a compelling story in how he’s positioned Tesla,” said Karl Brauer, executive publisher at Kelley Blue Book. “Between the Gigafactory, the solar panel company, and the autonomous technology embedded in every Model S and Model X being produced, Elon can claim to be ahead of traditional automakers on the road to self-driving cars powered by renewable energy.”
The idea, it seems, is that Tesla will eventually make lots of money by selling electric (and self-driving) cars and solar panels, as well as standalone energy storage to residential, commercial, and industrial users. All of these could make Tesla lots of money — though it’s not happening yet.
One report suggests that traditional automakers like GM, Ford, Daimler, and BMW remain ahead of upstart Silicon Valley firms like Waymo, Uber, and Tesla when it comes to self-driving tech — but investors don’t appear to care. “Whether or not Musk’s story is accurate doesn’t really matter, at least not today,” says Brauer. “Perception is reality, as Tesla’s stock price confirms.”
Last quarter, Tesla set new quarterly production and delivery records, moving slightly more than 25,000 cars in the first three months of 2017. But that’s still a far cry from the massive number of cars and trucks that its competition moves.
“Ford delivered more F-series trucks in the US alone in March (81,330) than Tesla delivered globally in all of 2016 (76,230),” said Sam Abuelsamid, a senior research analyst at Navigant. “And each one probably generated more profit than all of Tesla did in 2016.”
Tesla CEO Elon Musk tweeted yesterday that “a stock price represents risk-adjusted future cash flows,” and said that Tesla is “absurdly overvalued” if based on past performance, but that looking backward is “irrelevant.”
“Tesla’s stock price can’t have anything to do with their efforts as an automaker,” says Abuelsamid. “They’ve yet to demonstrate that they can achieve consistent profitability without creative timing of paying bills and pushing deliveries out the door.”
The company plans to release its more affordable Model 3 electric vehicle later this year and says it is working to increase production from a bit more than 76,000 cars last year to 500,000 cars in 2018. That would be truly impressive growth, but not everyone is convinced just yet.
“I would guess it had as much to do with relaunching the rocket as it does Tesla’s business,” said Abuelsamid. “Since you can’t buy SpaceX stock, Tesla is the only way for people to invest in the Musk cult of personality.”
Comments
Well put. The entire stock market is based on "hope".
By TheEveryman on 04.04.17 4:36pm
It is also a matter of Ford and GM being way too mature. Why would you buy their stock if you know they aren’t going to grow? They are stale, the risk for them to go downwards from their massive 10 million cars a year sales is higher than the possibility for them to go upwards of that and somehow gain more marketshare (from the likes of Toyota) in a very saturated market of ICE cars.
By MoonLightSwimmer on 04.04.17 4:50pm
Dividends and security. The risk of a sudden revenue drop-off with Ford and GM is quite low. You certainly stand to gain more from Tesla, but you also stand to lose more. Greater the risk, greater the rewards, blah blah.
By TheEveryman on 04.04.17 5:07pm
The question of why Tesla, which lost $675 million on $7 billion in revenue last year, is worth more than GM (with 2016 revenue of $166.4 billion and net income of $9.43 billion) and Ford (with 2016 sales of $151.8 billion and net income of $4.6 billion)
hmmm… maybe because 3%-6% profit doesn’t inspire crazy allegiance in companies this mature and established.
By RedSun on 04.05.17 7:57am
Right, there’s a reason why every single fund under the sun has the disclaimer "past performance is not an indicator of future results".
Stocks are not bought for the money the listed companies made, they are bought for the money they will make. Results will always be past tense, while stock are always traded on future performance. In many cases, there may be a correlation between past results and future performance, but that goes out the window when you look at startups that are growing rapidly, and investing heavily in that growth.
By OpssYourBad on 04.04.17 5:16pm
This is how the market works, no surprise.
The same reason Amazon had huge stock prices when it wasn’t even profitable. But look at them now.
Tesla is a high risk, but very high potential stock. Hence the price.
By TheVergeUrge on 04.04.17 8:08pm
Amazon: still not really profitable and going into weird gambles like brick and mortar stores?
By JoeMal on 04.05.17 8:44am
They are very profitable.
By TheVergeUrge on 04.05.17 11:48am
Not that much of a weird gamble.
They are just leveraging their existing warehouse and drive routes and slapping a front end onto their book-selling business and seeing what sticks.
The hardest part of the retail business is not the store space expense itself. It’s nailing the stocking logistics and hitting the "sweet spot" of profitability without overstocking any particular store with product that doesn’t sell.
Why do you think grocery stores push and push on having customers buy-in tho their shop cards for store discounts? It’s because they need that data to know what to ship to that specific ‘demos’ storefront.
Amazon is light-years ahead in the acquisition and fulfilment of a typical consumer’s spending habits on their website and having that manifested in a consumer-dense urban environment with a front-end, it poses more minimal risk.
And I haven’t even touched on their delivery infrastructure that would supply these storefronts which, again, is miles-ahead of the competition with maybe the exception of Wal-Mart.
By jla001 on 04.06.17 3:20pm
I thought that was rebellions
By superdx on 04.05.17 1:58am
The question of why Tesla, which lost $675 million on $7 billion in revenue last year, is worth more than GM (with 2016 revenue of $166.4 billion and net income of $9.43 billion) and Ford (with 2016 sales of $151.8 billion and net income of $4.6 billion) is a complicated one.
Not really… that $675M "loss" was because they paid $2,600M to acquire SolarCity in 2016 along with Grohmann Integrations (robotics used to automate car manufacturing) for an undisclosed amount. Remove that an they would have been profitable for the year. Also… Tesla literally cannot build cars as fast as they can sell them (2 month waiting list for the Model S and X, 2 year waiting list for the Model 3)… so there is a lot of pent up demand for their vehicles. In contrast GM and Ford have more or less been on a decades long decline or at the very least have only really been treading water in a very mature industry. There is basically nothing they can do to sell dramatically more cars than what they are already selling now.
By android_alpaca on 04.04.17 4:55pm
Why would their investment in acquisitions be part the loss? Have they already had to write it down?
By jtfields on 04.04.17 5:07pm
You’re trying to justify shit supply with excess demand. There is a massive difference between not being able to keep up because you’re weak and because people want your stuff.
Also, the acquisitions, like jtfields said, don’t justify the loss. Too early to charge goodwill on them.
By NukedKaltak on 04.04.17 6:12pm
Weak? Please. Stop with your overly dramatic wording.
By tomjones2523 on 04.04.17 6:21pm
WOW, you guys are a delusional bunch. I guess Tesla not being able to pump out more cars in a year than Ford does for one model in a month is NOT weak.
Are you guys that blind or is Tesla like some sort of off limits religion?? They’re weak in the most objective sense. They lose money, they can’t keep up with production, their cars are plagued with reliability issues, compared to the big guys, their numbers are embarrassing, and they’re alive because people (including myself, mind you) want them to work so badly. So please, be objective and admit there was nothing "overly dramatic" in what I said.
By NukedKaltak on 04.04.17 6:30pm
This is not a fair comparison. The combustion-engine car assembly process is 100 years old by now, with dozens of different companies exchanging talents and consequently improvements. The electric car assembly process is so new that Tesla created theirs from scratch, so it takes time to scale up to the same levels of a 100yo Ford — especially because they rely on different parts compared to combustion-engine cars.
I am admittedly a fan of the engineering behind electric cars — less moving parts, less maintenance.
By pauloavelar on 04.05.17 9:41am
Electric motors were around before internal combustion engines. The vehicle engineering feats aren’t actually that crazy. You can take a traditional car (like the Lotus body of the roadster) and drop in an electric motor+batteries without a ton of work. There’s a whole hobby built around converting pickup trucks to electric. Tesla’s real work has been in optimizing their electric motors and battery systems.
The issue Tesla faces is the same as any new car maker. Getting manufacturing tooling up to pace goes the same for GM, Ford, Toyota, and Tesla. Those other companies are faster because they have their massive logistics systems behind it, and the experience of spinning up new assembly lines every couple years. Tesla is learning as it goes, and doing a pretty good job of it. How many new car companies actually get production running without being owned or allied with an existing car maker?
By ench on 04.10.17 1:31pm
Butthurt much?
Do you work at GM?
You don’t have to buy their cars or their stock.
By TheVergeUrge on 04.04.17 8:09pm
No but I own Tesla stock and am obviously more vigilant. What’s your excuse?
By NukedKaltak on 04.04.17 8:22pm
Why would they write down the value of their acquisitions? The don’t expense acquisitions like that.
Also, what happens to Tesla’s profit when you back out the the credit sales and rebates? They’re not even making money selling their actual cars…
By noone1 on 04.05.17 3:27am
Two counterpoints:
1) People wait for 6 months or more for some cars, at least in Europe. Examples: Peugeot 3008, Skoda Superb. It doesn’t mean that people will buy Skodas and Peugeots in 2018. There will be other cars by then, probably better, probably with shorter waiting list.
2) Not only Tesla buys other companies. Others invest and acquire all the time. Ford just bought Argo AI and plan to invest 1 billion dollar into that venture. So, a loss is a loss.
By BartG on 04.05.17 4:17am
Decades long decline? Do you know the auto industry has seen record sales and profits since the recession?
By JoeMal on 04.05.17 8:45am
Amazon lost money quarter after quarter building their company, which is same direction Tesla is going. Today Amazon is biggest retailer on the planet.
By amcfarla on 04.04.17 4:58pm
But this is nothing like Amazon, is it? I feel like we should stop drawing parallels to try to foresee Tesla’s future. This is uncharted territory, this is new business: your guess as good as any. Tesla could become the best shit ever just as much as it could become the next biggest bust.
This article doesn’t sentence Tesla to die, it just reminds people that they are riding on hope. And a LOT of it.
By NukedKaltak on 04.04.17 6:05pm
Oh well. Tesla is still a company that is more than just automotive. Regardless of how you try to spin it, Tesla is doing better than you would ever have admitted two years ago.
By tomjones2523 on 04.04.17 6:22pm