I wasn’t really paying attention, so maybe I’m the only one that hadn’t noticed, but Tesla’s market cap as of December 9th 2020 is a touch over 616 billion US dollars. That makes it kind of a big deal. In fact, it accounts for a full third of the global automaker market cap:
Just for a bit of context – Tesla only listed on the stock market 10 years ago (June 2010). The company itself was only founded in 2003. Compare that to Ford which launched in 1903 and basically invented the concept of mass production (the Model T is still one of the best selling cars of all time) or Benz in 1889, whose founder, Karl Benz, literally had a patent on the original goddamn automobile.
Here’s a racing bar chart of a few of the top automakers share prices over the last couple of decades. Tesla both literally and figuratively comes out of nowhere (spoiler alert: things get insane in 2019):
As you can see from the chart, the share price has pretty much 10x’d over the last 12 months. Why? Well, it’s certainly not because Tesla is making 10 times the revenue or shipping 10 times as many cars. In all of 2019, for example, Tesla shipped 367,500 cars. In Q3, 2020, they shipped 139,300 cars, giving them a run rate of around 550,000 cars for the entire year. For context, Toyota sold 927,623 cars in October 2020 alone (source).
Here’s how Tesla compares to some of the automakers mentioned above in terms of yearly car sales:
No, I didn’t forget to add Tesla to the chart – you just can’t see the label because of how tiny the sales numbers are relative to other automakers (it’s that little blue sliver between Volkswagen and BMW if you still haven’t found it).
As you’d expect from the huge disparity in car sales shown above, Tesla’s revenues are also dwarfed by the bigger incumbents. Expected 2020 revenues are around 28 billion USD – impressive, but more than an order of magnitude less than VW’s 299 billion USD in 2019.
So why does the market have such a hard on for Tesla? As the chart above shows, Tesla’s market cap seems to be completely out of whack with its revenues and earnings (the latter was just 10 million USD in 2019).
The simple answer is that the market is valuing the VW’s, Toyota’s, and Daimler’s of the world on what they are – car companies. Tesla, on the other hand, is being valued as a tech business, and therefore what it *could* be. Car companies are boring and predictable. Technology companies though… Well, they have pretty much unlimited upside, don’t they?
Here are a few things Tesla has going for it.
- First, and most obviously, the electric car market is really just getting started. There are close to 100 million new cars per year sold globally, and less than 1% of them are electric, though this number is growing quickly – it’s already 5% in China – and expected to surpass 50% in most developed nations by 2030. There is even some talk of the UK and EU banning sales of new petrol and diesel cars in the not too distant future.
Tesla clearly has a first mover advantage here, and a lead on battery technology and EV engineering, though the quantum of this lead is disputed.
- Tesla may be the first company to actually nail self-driving. After overpromising and underdelivering for years (in 2015, Musk predicted FSD could arrive by 2018), Tesla Full Self Driving appears to have launched in beta for some drivers, though early reports of its reliability are mixed.
- Revenue growth to date. Sure, as we can see in the above chart, total revenues are still only a fraction of VW’s and Toyota’s, but 10 years ago Tesla had revenues of 100m USD compared to 2020’s projected 28B USD – that’s a roughly 28 fold increase. In the same period, VW’s revenue has increased by about 75%, and Toyota’s by only around 30%.
- Well placed in solar and home energy storage.
- The Tesla brand is cool, the Elon Musk brand is cool
And finally, Tesla is, for pretty much the first time in its history doing something many of its critics said it would never do – actually turning a profit. The 10 million USD profit it made in 2019 was for all intents and purposes breaking even (and was driven largely by sale of regulatory credits), but in 2020 expected profits are a meaty looking 1.26B USD.
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