How Does Tesla Stack Up Against Its More Traditional Rivals?
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By Patrick Foot, financial markets writer at IG*, a leading provider of online stockbroking, CFDs, and currency trading.
The distance that Tesla has travelled in the past 18 months has been truly remarkable, even if its stock retracted to more realistic levels this week.
The company has been overcoming its diminutive size in terms of actual car sales and revenue by maximizing growth in its brand, technological development, and in turn market cap. That has been done, by and large, by trading on the potential future profits rather than current sales: a good thing since the company is still trading on a negative earnings per share.
As a strategy, it’s certainly working, and Tesla has grown a staggering 700% since the beginning of last year as the NASDAQ has managed less than 50%. In particular, the pullback that occurred after the stock’s previous peak back in March has been reversed, and in the last few days that peak has been exceeded.
Other major car manufacturers have remained comparatively static in the same period – Ford and General Motors have managed to grow 36% and 25% respectively, for instance – which has brought Tesla’s share price in line with its bigger, more established rivals. So where does Tesla fit in the global automotive industry?
Tesla’s run of growth has swelled its market cap to over $32 billion. In the markets, that brings it roughly in line with the current value of German manufacturer Audi, whose stock has failed to excite the markets in the past few months. Both companies sit on the fringes of the ten biggest car manufacturers by market cap globally, which makes Tesla worth more than the likes of Renault, Porsche, Fiat and Peugeot.
It’s still some way behind its compatriot companies, though, with General Motors’ valuation of around $55 billion still comfortably ahead of Tesla, and Ford worth over double Tesla at $65 billion.
But with Tesla’s rapid rise on the markets looking like it may well be set to continue, we may yet see a day when the electric car company becomes the most valuable manufacturer in the country. In order to get there, Tesla would first have to overtake General Motors, which would require growth of around 60% (assuming that GM remains static) which Tesla achieved in the first six months of 2014. Until the recent reversal growth had slowed only slightly: it is was up a further 18%, and still has a price target of $400, which would result in a cap above $50 billion.
Broker sentiment on Tesla is highly favourable, despite their overbought status. IG’s platform indicates that 11 out of 17 brokers rate Tesla as either a buy or a strong buy, whilst 5 rate it a hold and just one has a negative outlook on the stock. Even with that in mind, however, doubling value and overtaking Ford is a longer-term proposition.
Globally, Ford sits behind three major German manufacturers – BMW, Daimler, and Volkswagen, which are worth around $75 billion, $86 billion, and $100 billion respectively – and Toyota at the top with a value above $180 billion.
That Tesla is even challenging these heavyweights is staggering in itself. In the 12 months up to March 2014 Toyota had revenues of almost $50 billion; Tesla recorded $500 million for 2013 as a whole. Toyota’s value on the market is six times greater than Tesla, its revenues are 100 times greater. Closer to Tesla’s level, General Motors still had revenue of $18 billion in 2013: 36 times more than Tesla.
But with a “Gigafactory,” Chinese expansion, and rapid rise of the popularity of electric vehicles all adding wind to their sales, Tesla and its investors clearly believe that they have enough to justify their stock price and start delivering healthy profits. Should they do so, Tesla may well begin to challenge even the most illustrious global car manufacturers.
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*This article was sponsored by IG.
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