Place Your Bets

What gives a companies stock more value, history and size or a lot of raw potential? For the analysts on Wall Street, the answer is simple. Go for the big bucks. Right now, Tesla motor company is valued at around 8.8 billion dollars. That 8.8 billion is a billion dollars more then Fiat. Fiat, which includes Fiat itself, Chrysler, Maserati, and Ferrari, is, in the eyes of wall street, worth less then a ten year old company which has just one profitable quarter in its entire history. Tesla has sold less then 10,000 vehicles in its 10 year existence, Fiat sold four times that many 500’s…. in the US…. Last year.

However, looking at “potential,” there is quite a lot to be hopeful for when looking at Tesla. Half of Tesla’s income last quarter came from the sale of California ZEV credits, which add about 35,000 dollars of profit to each Model S sold. In addition, Tesla is unique in the industry in that, because battery technology is still advancing and still getting cheaper, if Tesla only continues to produce the car as is, they will make a greater profit on each vehicle. Tesla however, is not content to continue, “as is.” Last year, Tesla cut the build hours required to assemble a Model S by 40%. As Tesla grows they are able to take advantage of economies of scale. Tesla expects to produce and sell around 20,000 vehicles next year.

On the downside, Tesla is still a bit of a risky bet. Without government help, Tesla would still be losing money. It is important to consider when investing in a company like Tesla, that you are still essentially investing in the government continuing to provide the support they are.  However, at the moment, it appears that Wall Street is willing to make that bet.


3 comments to Place Your Bets

  • Given standard P/E ratios of (say) 1:1 for a cyclical industry, can Tesla earn $1 billion on an ongoing basis? — and soon, as future profits must be discounted? I’m a skeptic!

  • kuveke

    I find myself wondering the same thing. The thing about the market is that it evaluates companies by general sentiment as opposed to pure numbers. That’s why the market is so unpredictable. Is ford stock really worth 14.7 dollars a share when GM’s is worth 32.5 dollars a share? Based just on numbers those values don’t seem right. Ford posted a first quarter pretax profit of 2.1 billion dollars while GM came in at 865 million in pretax profits

  • Let me add a link to a nice article in Forbes by Joann Muller, The Real Reason Tesla is Still Alive