Tesla has no right to be the most valuable automaker in the world

Tesla's stock price is running under the impression that in 10 years it will be the only remaining automaker as sales and global EV market share slide

4w ago


We're always told that value is impossible to define; for example, why do we so covet those green rolls of cotton in our pockets? Because, in theory, those bills, while having no inherent value, have the potential to provide you with just about anything you'd want.

But while this can be said about a $20 bill, the same cannot be said of Tesla. Over the past year, Tesla's (TSLA) stock price has skyrocketed by just over 1000%, and while this is certainly an impressive-sounding number, few people actually understand what it means.

A company's stock price is, in essence, what investors believe the company's potential to be. So, in theory, a company like Tesla, with at best average sales and dismal profits, should under no circumstances be worth more than any other automaker on the face of the earth.

However, amid a worldwide pandemic, Tesla has managed to establish itself as the world's most valuable automaker, with a market capitalization of 92 billion at the time of writing.

Just to put that into perspective, for Tesla's current stock price to be representative of reality, ten years from now, Tesla would have to be the only remaining automaker!

And while I'm sure that every member of the 'Teslarati' would gladly have you believe that this is the case, I'd bet my right leg that the vast majority of Tesla's private shareholders haven't the slightest clue what the stock's apparent value actually means, and are just holding on for the ride.

And before every single first-gen Model S owner descends upon me with accusations of selling out to big oil, I would like to explain to them that up until very recently, I was a Tesla shareholder. And that there isn't a single shred of evidence that Tesla can or ever will be the sole-surviving automaker.


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Comments (72)

  • The valuation to attach to Tesla is vastly more than the car building business. It used to be said of Ferrari, that you bought the engine and Enzo threw the car in free. Tesla, which is part of Musk's multi-business empire, is essentially a technology Company, like FaceBook or Apple, or YouTube... it isn't the stuff that runs it, rather it is what makes it run, and work so much better than everyone else's go at the same job. Musk is a strange confection in the one man. He's firmly in the Capitalist camp, yet has strong humanitarian convictions that he supports without charge or expectation of return. He's a scientist with a business brain. He's a doer, not just a sayer. His ambitions have a strong tendency to become reality and this has and is attracting the absolute cream of the planet's cutting edge technologists and researchers. He talks of 'the machine that builds the machine', then builds a brand new giant factory from first turn of the sod to full production in less than a year. He approves design changes whenever the tech becomes available, not waiting for the next 'model year'. He updates his products free of charge, overnight, by internet. His various businesses are creating technology in reality, that most Companies take decades to come up with, such as brain to computer interface, orbital satellite networks to supply internet globally without using wires, reusable rockets that land themselves after each use, interplanetary spacecraft to get humanity to Mars, Solar roofing that is indistinguishable from an ordinary roof, giant battery packs that remove the need for 'peaker' power plants (that kick in for sudden peak power demands) and store the wasted energy, that power generators have to run 24/7 , like nuclear, whether there is full demand or not, similarly these power packs store wind energy and solar energy for bleeding into the power grid when the sun and wind die off. They make a range of highly efficient cars, are readying a plant to supply articulated electric tractor-units and a state of the art pick-up truck for the American market. Tesla operates world wide with giant factories in China, a new one being built in Berlin and more in America, while they have applied to be a power supplier here in the UK. All this is going on while the research groups the business finances, are constantly expanding and coming up with new and better ways to do what we struggle to even dream of now. He has the Boring Company, already successfully creating underground transit links between locations at a tiny fraction of the cost of any other method (how much less our hated HS2 would cost if this system was employed, never mind Crossrail). I'm certain I've missed out many more activities already being done... oh yes, they're developing their own battery chemistry and production line for pollution minimalised, power and life maximised, in-house... expect confirmation on or around the 20th of this month. So, THAT is why people value Tesla so highly. Full self driving in beta before the end of this year with prototypes already running it on bespoke Tesla made chips running Tesla bespoke software on Tesla bespoke operating systems, and with the rate of development in batteries, expect electric jet engines employed in holiday jets and private self flying personal transport drones within ten years at an absolute maximum. None of this is sci-fi and most of it already exists. The hardware is the easy bit, the brains, the research and the software that runs it, that's what makes this ten year old business potentially the most valuable Company on the planet.

      29 days ago
    • You make some good points, and I agree that Tesla has tremendous potential, but not as much as their stock price would suggest.

        29 days ago
    • "work so much better than everyone else's " how so? The only part of Musk's "empire" that does, is space X - because US government finally decided to stop propping up the remains of USSR space industry (reality, by the way, not a conspiracy...

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        29 days ago
  • My brokers say that I should just invest heavily in the frozen orange juice concentrate markets and stay out of the auto industry altogether. At least for now.

      28 days ago
  • Interesting comments. Tesla is an anomaly in the auto world for certain. This money train will not go one forever. Never does. At some point Tesla will see competition. As it stands today they dominate the minds of battery powered vehicle buyers. Few alternatives are offered, yet. Tesla build quality is going to be the key to their undoing. They can get away with it now while they have the commanding lead. Once competition catches up, however, it will come back to haunt them.

    Having said that I must acknowledge what Elon has done in Tesla. He is going up against the Big Three and winning. That is no small feat. For that reason alone he is a record setting pioneer. Add in the other Tesla innovations and it is downright amazing. Is it worth the crazy valuation? No. But investors are not the be all of reality. Look how much money was literally thrown away during the Dotcom bubble or the subprime mortgage debacle.

      29 days ago
  • The market cap is such because the people who make the market cap are using the same drug as the company founder. Coke. Lots of coke. Wall Street traders are the market makers. They can do whatever the hell they want with the prices until the owners of the private equity they're playing with ask for the money. Then crash, boom, bang.

    That's why.

    Tesla is Bitcoin. Generally useless, super inefficient, but always in the media spotlight and hence there are a bunch of fanatical fans...

    The bigger problem with Tesla is that all the talk pushed many car companies into investing in EVs and the technology ecosystem is just so far off being ready for mass adoption. Unless, of course, we all want to die from coal dust ;)

      28 days ago