Tesla Overvalued... you think?

December 12, 2020

What if I told you that Tesla has the same market cap as Toyota which produces 8.8 million vehicles per year while Tesla only produces 350,000 vehicles per year? That would be an amazing difference in itself. There's more though... add to that Honda which produces 2 million vehicles and another million other products. Volkswagen, with its' wholly owned subsidiaries; Audi, Bentley, and Porsche, create 10 million vehicles per year. Mercedes-Benz sells about 3 million vehicles per year. GM sells about 8 million. BMW sells 2 million. Ford sells 3 million.

Tesla who produces 350,000 vehicles per year has the SAME market capitalization of ALL the major car manufactures COMBINED! When they enter the S&P 500 index next week they will be valued as the 6th largest company....but they only produce 350,000 vehicles or 1/20th that of Toyota.

Keep in mind that the rest of the world wants to catch up in the EV space. NIO is a Chinese company that makes great electric vehicles and will penetrate the US market sometime soon. BYD Company Ltd. (BYDDF) has Warren Buffett as an investor, Toyota already is working on their Tesla killer and Bill Gates recently stated he purchased the Porsche EV.

Can Tesla keep its lead? Netflix was a disruptor that buried Blockbuster. Amazon destroyed many department stores. Maybe the new kid on the block is the only one to bet on? It sure seems that way.

There are a few advantages that Tesla has over the other car makers. One is that Elon Musk can raise 5 billion dollars in an afternoon by dumping more shares of TSLA into the market. It doesn't have more than a one or two day negative effect on the stock price before it starts heading back up again. Secondly he owns a rocket company that launches satellites. When autonomous cars that talk to the satellites are common place he will be way in the lead. Finally, Tesla is primarily a software company. The electric car in its basic form is an electric motor on each wheel driven by software. The other car companies are not that software savvy as Tesla.

So the valuation, though very, very, very high, can still be justified by some. If you bought it on the March dip you would have made 7 times on your money already... maybe enough to actually buy that car!


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