Another one bites the dust.
Some people don’t understand it. How can a little upstart like Tesla be worth more than almost every other automaker in the world? Of course, being that I have an outsized investment in Tesla [TSLA] compared to other stocks, I have a fairly strong opinion on this topic. In summary, I would say that all is right in the world of auto stocks, so I’ll try to explain how this makes sense.
First of all, though, the important thing to remember is that people managing hundreds of billions of dollars have determined that auto company valuations should be where they are right now. The Tesla stock price does not rise and fall primarily on the mood of a few hundred fickle retail investors. The bulk of the stock is owned by gigantic institutional investors. In other words, the misleading narrative that the Tesla stock price is high because of naive, young, Kool-Aid–drinking retail investors should be thrown in the trash.
Update: German automaker market caps above were off initially and have been corrected. Also, Toyota’s market cap is far higher than any of the other automaker’s, but it is not included here.
Another thing to consider is that it’s 2018, not 1918. Car companies aren’t just car companies. Conventional car companies have large engine factories on the books, and gasoline/diesel engines are on the way out. Batteries are key to the electric future, and it seems that Tesla is far in the lead with significant, fruitful investments in battery factories, useful IP, and overall battery expertise. Software is also key to the future of cars, and Tesla again appears to have a leadership position (a big one) when it comes to sophisticated vehicle software.
Every carmaker has its hands in our ride-hailing, carsharing future — which eventually means robotaxis. Some people think GM has the most promise in this regard, some think it’s Volkswagen, but many certainly think it’s Tesla. That is a gigantic market and the leaders will be making a few fortunes, which means they’ll be worth a few fortunes. Uber was worth $72 billion in February and an IPO might put it at $120 billion. Supposedly, Tesla’s potential “Network” for self-driving carsharing isn’t valued by most Wall Street analysts. If it really isn’t included much in Tesla’s market cap, there’s plenty of room for further growth in the coming years. If it is included a bit in valuations, that further helps to explain why Tesla is already above Daimler, BMW, GM, Ford, Fiat Chrysler Automobiles, Honda, Nissan, Renault, Hyundai, Kia, and others in market cap.
One more thing to consider briefly is that Tesla is hot, hot, hot among young people. Kids love Tesla, teenagers love Tesla, and young adults love Tesla. This brand strength among future car buyers will be powerful starting in 5–10 years. Stay tuned for that.
Back to today, the market valuations of Tesla, Daimler, and a few other top players at the close of market today were (in billions):
- Tesla — $63.18
- Daimler — $62.89
- BMW — $55.03
- Ford — $37.25
- GM — $52.22
- FCA — $26.76
- Volkswagen — $82.44
- Toyota — $171.1
If you’re looking to buy a Tesla, appreciate my work, and need a referral code, here you go: http://ts.la/tomasz7234
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