Tesla’s market capitalization currently floats around $31 billion, equal to $620k for ever car delivered in 2015 and $63k for every car that is projected to be produced in 2020. General Motors, on the other hand, has a $48 billion market value that resembles $4,800 for every car sold in 2015. Tesla’s valuation is around 125 times the next 12 months of expected earnings, hinting that shareholders are overpaying for the not yet proven company.
Tesla is one of the top 10 most-shorted companies by market value, indicating investors are borrowing on shares and expecting the price to drop significantly. It is key to note that these are not everyday traders shorting Tesla, rather they are industry proven fund managers who have hand picked the move for their portfolio. Investors feel Tesla underestimates the hurdles of scaling when producing cars to deliver this year. Further, Tesla allows no allowance for operational setbacks and one slip up could halt production completely. GM and Ford, selling 10 and 6.6 million cars, respectively, are industry leaders with deep roots in the industry. Tesla will have to sell 1.5 million cars, at triple GM’s $1,000 profit, to have a price-earnings ratio of 20. It is apparent Tesla is over-valued, and it will be interesting to see how the value plays out as proven competitors introduce competing cars to the market.
Interesting article and I too am curious to see how Tesla fairs over these next few years. Tesla’s valuation is rooted in massive expected earnings that easily may not be met. With industry proven fund managers shorting Tesla, how long do you think it will be until a massive drop in share price, if ever?
That is an incredible amount of money per car! It’s incredible to me that Tesla can survive in such a competitive market as the auto industry with such prices. When you compare the $63k to the $4800 that General Motors nets per car, the amount is astronomical. Thank you for posting this article about Tesla; it is a truly fascinating company. I can’t wait to see how such market practices play out in the long term for Tesla.
Tesla is to date a boutique producer selling into the upper end of the luxury market – not just a $60,000 car. Even if they survive in that niche, they can’t produce profits commensurate with this market valuation.
See some of the news links, including one I posted today from Slate.