John Gapper writes on the massive valuation and the investment challenges surrounding Tesla Inc.
Tesla Inc. has reached the trillion-dollar valuation with only a short career in the US, and just three years of manufacturing its cars in the United States.
Tesla’s market capitalization is more than seven times bigger than Ford Motor Co., Ford’s only bigger rival, and can be estimated as close to Tesla’s overall purchase price.
There are two key, and often paradoxical, differences between Ford and Tesla.
Ford has, for nearly a century, been controlled and managed by a full corporate family, led by the fabled Henry Ford family.
Tesla’s board is a disparate collection of board members, most of whom are highly experienced in other businesses with no real experience in industry, manufacturing, or in energy.
Also, Ford has never been a public company.
So despite their seemingly similar fortunes in market capitalization, shares in Tesla (TSLA), with a market cap of $55.1 billion, are valued more on demand for their current stock than on established commodity earnings.
On the other hand, shares in Ford are valued accordingly on proven utility of scale and quality.
Many markets have “micro caps” that are also found among the “blue chips”. However, blue chips provide investors with the widest range of different investments possible because they all share attributes that most investors prefer: secure dividends, low volatility, durability, and predictable returns.
Tesla, in contrast, provides few security and choice.
“Micro caps” tend to be one-trick ponies and cannot compete with larger, “blue chip” businesses. So the upside for Tesla in future will be that its shares will rise in price the way that top-flight blue chips have risen in value – just over time with more and better stock options that investors will choose.
Thus long-term investors can tolerate short-term volatility and thus again be rewarded with higher returns. But not for everyone.
Tesla is a disruptor in a market dominated by mainliners.
Many studies and empirical research have shown that traditional firms tend to be stable, therefore they are less likely to be disrupted by startups.
So can the brand name of Tesla ever be manufactured “with” traditional automobiles?
Is it plausible that Tesla’s manufacturing performance will evolve to such a level that eventually it can make each car from the smallest chassis available at Tesla, whose battery and power module are supplied by the local factory run by Nissan, so that Tesla will be able to produce the vehicles of choice?
It is likely that Musk and his team will succeed. However, it is naive to think that a small, scrappy startup with almost no experience in manufacturing, engineering, and supply chain management can just “make” industry-standard cars any time soon.
This column originally appeared in The Financial Times.
LONDON (CNNMoney) — Electric cars still represent a tiny sliver of the market. One UK analysis last year found that just 0.04% of new cars sold in the country were all-electric. Yet the industry as a whole is struggling to keep up with demand.
These days, the next-generation of electric cars offer such compelling power, range, and styling that they are catching on in large numbers. Nissan is selling almost 250,000 Leafs in the US annually, and General Motors is forecasting that it will sell 500,000 electric cars worldwide in 2018.
The biggest unanswered question is whether the demand will ever grow large enough to justify the investments required in the necessary technology.
Tesla is a different company from the traditional automakers, and it