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Tesla's PE in 2016 is forecasted over 130. For comparison bmw is under 10. Tesla is priced for perfection.

ceejayoz 11y ago
Comparing Tesla to BMW like that probably isn't very reasonable. No one has any expectations that BMW will suddenly decide to start selling 10x or 100x the number of cars, while that's Tesla's explicit goal.
- 6stringmerc 11y ago
  That's an interesting point. If Quality Control issues persist (at a rate statistically significant vs. the 'competition'), and there's a larger number of vehicles purchased / in use, then I wonder if the repair and maintenance services by Telsa will be negatively affected? I mean, it's one thing to schedule an appointment when there are XX shops that can work on a brand where the local population is in the thousands (like BMW), but if there are many more cars with issues than there are shops to fix them...that sounds like a choke point to me, and one rather unique to Tesla in this regard.
beat 11y ago
Tesla is a growth company that could be a giant. BMW is a stable old blue chip. Different market values entirely. At the individual car level, Tesla S is priced to match mid/high end sedans from BMW, Mercedes, and Audi, so that's the quality level they need to hit. And such quality isn't about reliability so much as fit and finish. Tesla is doing extremely well against very established competition in that regard.
- encoderer 11y ago
  Check out the PEG ratio, which factors in growth. Rapid and sustained growth is not guaranteed and bad press can inhibit it. But you need that growth to justify the valuation. Priced for perfection.
  - toomuchtodo 11y ago
    Priced to be the supplier for every other vehicle company that needs batteries, every utility that needs utility scale battery storage, and possibly even an Uber competitor. Properly priced.
    - encoderer 11y ago
      Right. So when tesla appears to stumble on this path, that is going to impact the share price more severely than it would a company whose value is more inline with its peers.
      - toomuchtodo 11y ago
        But Tesla hasn't stumbled on this path, its stumbled on its vehicles. The vehicles have simply been a method to bootstrap their Supercharger network and Gigafactory, which are both on schedule. Arguably, once enough vehicle manufacturers were producing electric cars, Tesla could close up their vehicle manufacturing business if they were so inclined (and exist solely to provide battery packs).
        encoderer 11y ago
        So their success in these new markets is a foregone conclusion at this point and stumbling in their most significant product doesn't affect it? Ok. I don't buy that but it's a perfectly reasonable assertion. Buy the dips if you believe that.
        toomuchtodo 11y ago
        > Buy the dips if you believe that. I do!
    - makomk 11y ago
      When it comes to batteries, Tesla are more of an integrator than a manufacturer - they package up commercially available, off-the-shelf cells into batteries with some cooling and a mostly off-the-shelf battery management solution (based around a Texas Instruments IC marketed specifically for battery management in electric cars, the BQ76PL536A). That's not a high-margin business to be in because there's not much of a barrier to entry for new competitors.
- tdees40 11y ago
  Tesla' market cap is $30B. GM is $53B. Ford is $61B. If you're buying Tesla, you have to believe that they will become a huge player, and soon. They can't just be bigger, they have to be huge or else you're radically overpaying for a niche producer.
  - beat 11y ago
    I want to play the game where we can make a fortune on high-growth stocks without any risk.
    - jarsin 11y ago
      Become a bank and issue IPO's :)
  - jkestner 11y ago
    Don't forget batteries. Rolls-Royce did well with jet engines, probably better than cars.
    - VLM 11y ago
      Agreed and don't forget licensing. OK so TSLA makes squeeky sunroofs, who cares, they can sell batteries and controllers and motors to ... construction crane companies or something. You know all the weird details of making a tow truck, cool, here's the parts to make it electric. Happens all the time in the automotive industry. The first "american" hatchback car I ever drove had a nice VW engine. Ironically it was something to do with low emissions.
      - semi-extrinsic 11y ago
        Well, Tesla buys their batteries from Panasonic. And the motor is a standard induction motor, not very different from what the actual (Nikolai) Tesla invented back in 1887. I agree that their control system is going to be fairly complicated, since induction motors require the AC frequency to be a function of the torque as well as the RPM. But then most applications outside "quick 0-60 pure electric car" use brushless DC motors instead, where the controllers are simpler. Even the insane McLaren P1 hybrid, which eats Teslas for breakfast, uses a brushless DC motor. So I'm not sure there is as much of a market for Tesla's expertise as you'd think.
- kpil 11y ago
  Tesla is showing what a car can be - Excellent UX, a nontraditional but really nice drivetrain, a good UI for the secondary systems with frequent software upgrades, etc. It's not hard to see the trend - it's been coming for the last 15 years at least. All drivetrains will be electric, and connected to a battery and optionally a range extender of some sort. The control panel will be all big screens and apps. Meanwhile, the existing manufacturer are perfecting the ultimate gearbox. They are in at least partial denial now, but they will soon need to dismantle those investments and some others to stay alive. Ex, Audi that has kept a really complicated gearbox instead of doing what Mitsubishi did, using a fixed gear system and a serial hybrid approach. (To be fair, they have nothing to gain from these changes, they just want to stay slightly better than the rest.) The bet against them is that some of them will not be able to reinvent themselves and then wither out into obsolescence. I think that this risk might not be fully included in the price right now.
  - avn2109 11y ago
    >> "The control panel will be all big screens and apps." Noooo - tactile feedback is so important in vehicle subsystem control! [0] Please do not take away my knobs and dials. [0] http://www.ecnmag.com/article/2014/01/keeping-feel-automotive-touch-controls http://www.ecnmag.com/article/2014/01/keeping-feel-automotiv...
    - oldmanjay 11y ago
      Not to ruin your day, but they're taking away your knobs, dials, and control of the vehicle.
      - avn2109 11y ago
        Honestly I might not mind being unable to control the vehicle as long as I could adjust the temperature with a hardware control.
        TeMPOraL 11y ago
        I think the endgame of a car is an artificial womb - moving you around, self-adjusting for maximum personal comfort - but with you being the one that tells it where to go.
ssharp 11y ago
I think Tesla is less priced for perfection and more priced for the future. Investors expect Tesla to eventually surpass companies like BMW, across the board for each model. By betting on Tesla, they're betting on Tesla being the dominating player in electric vehicles as well as electric vehicles dominating ICE vehicles in passenger categories. I also think the price includes things like their rapidly improving battery technology that could be used for things other than cars, like storing energy from sources that can't provide a steady stream of energy, like solar. So, there's certainly a lot going on with Tesla that isn't going on with a company like BMW.
- hugh4 11y ago
  How rational is it to bet on Tesla continuing to dominate the electric car market once the electric car market becomes mainstream? There are much, much bigger players waiting on the sidelines for market conditions to change.
  - adventured 11y ago
    They do have a significant head-start over most competitors. When companies like Porsche talk about launching their 'Tesla killer' - it's set for years into the future. It's definitely not rational to think Tesla will dominate, as no company actually dominates the auto industry. Toyota arguably comes closest and they don't dominate, they have a modest market share compared to what traditionally dominate companies have. Can they one day do $20 billion in sales and ~$1.5 billion in profit? Probably. That would justify their present valuation (they will very likely carry a higher valuation than most car companies, for the same reason companies like Google carry a higher valuation than IBM). The real problem for investors, is it may take eight to ten years to justify their present valuation.
  - marvin 11y ago
    They'll have to build some billion-dollar battery factories first. (Or someone else must). This will take some 5 years per factory, so that's a clear leading indicator. Also, most new cars will be electric in 20 years, and that's a lot of cars.
MichaelGG 11y ago
Perfection or just some growth? Their volume is really small, isn't it? If they just manage to sell, I dunno, 10x more cars then that P/E would drop right down no?
- bradleyjg 11y ago
  Assuming margins hold up (or improve).
weinzierl 11y ago
Probably not everyone knows what PE is (I didn't): The price to earnings ratio (PE Ratio) is the measure of the share price relative to the annual net income earned by the firm per share. PE ratio shows current investor demand for a company share. A high PE ratio generally indicates increased demand because investors anticipate earnings growth in the future. The PE ratio has units of years, which can be interpreted as the number of years of earnings to pay back purchase price.[1] According to [1] GE is 12, Ford 17, Nissan 10. Possible source for the P/E 130 [2]. [1] https://ycharts.com/companies/TSLA/pe_ratio https://ycharts.com/companies/TSLA/pe_ratio [2] http://www.nasdaq.com/symbol/tsla/pe-ratio http://www.nasdaq.com/symbol/tsla/pe-ratio
- repsilat 11y ago
  The fact that it's net income is very important here -- Tesla are rapidly scaling up production, which means lots of capital investment with a view to increasing future revenues (and profits.)

Comparing Tesla to BMW like that probably isn't very reasonable. No one has any expectations that BMW will suddenly decide to start selling 10x or 100x the number of cars, while that's Tesla's explicit goal.

6stringmerc 11y ago
That's an interesting point. If Quality Control issues persist (at a rate statistically significant vs. the 'competition'), and there's a larger number of vehicles purchased / in use, then I wonder if the repair and maintenance services by Telsa will be negatively affected? I mean, it's one thing to schedule an appointment when there are XX shops that can work on a brand where the local population is in the thousands (like BMW), but if there are many more cars with issues than there are shops to fix them...that sounds like a choke point to me, and one rather unique to Tesla in this regard.

beat 11y ago

Tesla is a growth company that could be a giant. BMW is a stable old blue chip. Different market values entirely. At the individual car level, Tesla S is priced to match mid/high end sedans from BMW, Mercedes, and Audi, so that's the quality level they need to hit. And such quality isn't about reliability so much as fit and finish. Tesla is doing extremely well against very established competition in that regard.

encoderer 11y ago
Check out the PEG ratio, which factors in growth. Rapid and sustained growth is not guaranteed and bad press can inhibit it. But you need that growth to justify the valuation. Priced for perfection.
- toomuchtodo 11y ago
  Priced to be the supplier for every other vehicle company that needs batteries, every utility that needs utility scale battery storage, and possibly even an Uber competitor. Properly priced.
  - encoderer 11y ago
    Right. So when tesla appears to stumble on this path, that is going to impact the share price more severely than it would a company whose value is more inline with its peers.
    - toomuchtodo 11y ago
      But Tesla hasn't stumbled on this path, its stumbled on its vehicles. The vehicles have simply been a method to bootstrap their Supercharger network and Gigafactory, which are both on schedule. Arguably, once enough vehicle manufacturers were producing electric cars, Tesla could close up their vehicle manufacturing business if they were so inclined (and exist solely to provide battery packs).
      - encoderer 11y ago
        So their success in these new markets is a foregone conclusion at this point and stumbling in their most significant product doesn't affect it? Ok. I don't buy that but it's a perfectly reasonable assertion. Buy the dips if you believe that.
        toomuchtodo 11y ago
        > Buy the dips if you believe that. I do!
  - makomk 11y ago
    When it comes to batteries, Tesla are more of an integrator than a manufacturer - they package up commercially available, off-the-shelf cells into batteries with some cooling and a mostly off-the-shelf battery management solution (based around a Texas Instruments IC marketed specifically for battery management in electric cars, the BQ76PL536A). That's not a high-margin business to be in because there's not much of a barrier to entry for new competitors.
tdees40 11y ago
Tesla' market cap is $30B. GM is $53B. Ford is $61B. If you're buying Tesla, you have to believe that they will become a huge player, and soon. They can't just be bigger, they have to be huge or else you're radically overpaying for a niche producer.
- beat 11y ago
  I want to play the game where we can make a fortune on high-growth stocks without any risk.
  - jarsin 11y ago
    Become a bank and issue IPO's :)
- jkestner 11y ago
  Don't forget batteries. Rolls-Royce did well with jet engines, probably better than cars.
  - VLM 11y ago
    Agreed and don't forget licensing. OK so TSLA makes squeeky sunroofs, who cares, they can sell batteries and controllers and motors to ... construction crane companies or something. You know all the weird details of making a tow truck, cool, here's the parts to make it electric. Happens all the time in the automotive industry. The first "american" hatchback car I ever drove had a nice VW engine. Ironically it was something to do with low emissions.
    - semi-extrinsic 11y ago
      Well, Tesla buys their batteries from Panasonic. And the motor is a standard induction motor, not very different from what the actual (Nikolai) Tesla invented back in 1887. I agree that their control system is going to be fairly complicated, since induction motors require the AC frequency to be a function of the torque as well as the RPM. But then most applications outside "quick 0-60 pure electric car" use brushless DC motors instead, where the controllers are simpler. Even the insane McLaren P1 hybrid, which eats Teslas for breakfast, uses a brushless DC motor. So I'm not sure there is as much of a market for Tesla's expertise as you'd think.
kpil 11y ago
Tesla is showing what a car can be - Excellent UX, a nontraditional but really nice drivetrain, a good UI for the secondary systems with frequent software upgrades, etc. It's not hard to see the trend - it's been coming for the last 15 years at least. All drivetrains will be electric, and connected to a battery and optionally a range extender of some sort. The control panel will be all big screens and apps. Meanwhile, the existing manufacturer are perfecting the ultimate gearbox. They are in at least partial denial now, but they will soon need to dismantle those investments and some others to stay alive. Ex, Audi that has kept a really complicated gearbox instead of doing what Mitsubishi did, using a fixed gear system and a serial hybrid approach. (To be fair, they have nothing to gain from these changes, they just want to stay slightly better than the rest.) The bet against them is that some of them will not be able to reinvent themselves and then wither out into obsolescence. I think that this risk might not be fully included in the price right now.
- avn2109 11y ago
  >> "The control panel will be all big screens and apps." Noooo - tactile feedback is so important in vehicle subsystem control! [0] Please do not take away my knobs and dials. [0] http://www.ecnmag.com/article/2014/01/keeping-feel-automotive-touch-controls http://www.ecnmag.com/article/2014/01/keeping-feel-automotiv...
  - oldmanjay 11y ago
    Not to ruin your day, but they're taking away your knobs, dials, and control of the vehicle.
    - avn2109 11y ago
      Honestly I might not mind being unable to control the vehicle as long as I could adjust the temperature with a hardware control.
      - TeMPOraL 11y ago
        I think the endgame of a car is an artificial womb - moving you around, self-adjusting for maximum personal comfort - but with you being the one that tells it where to go.

ssharp 11y ago

I think Tesla is less priced for perfection and more priced for the future. Investors expect Tesla to eventually surpass companies like BMW, across the board for each model. By betting on Tesla, they're betting on Tesla being the dominating player in electric vehicles as well as electric vehicles dominating ICE vehicles in passenger categories. I also think the price includes things like their rapidly improving battery technology that could be used for things other than cars, like storing energy from sources that can't provide a steady stream of energy, like solar. So, there's certainly a lot going on with Tesla that isn't going on with a company like BMW.

hugh4 11y ago
How rational is it to bet on Tesla continuing to dominate the electric car market once the electric car market becomes mainstream? There are much, much bigger players waiting on the sidelines for market conditions to change.
- adventured 11y ago
  They do have a significant head-start over most competitors. When companies like Porsche talk about launching their 'Tesla killer' - it's set for years into the future. It's definitely not rational to think Tesla will dominate, as no company actually dominates the auto industry. Toyota arguably comes closest and they don't dominate, they have a modest market share compared to what traditionally dominate companies have. Can they one day do $20 billion in sales and ~$1.5 billion in profit? Probably. That would justify their present valuation (they will very likely carry a higher valuation than most car companies, for the same reason companies like Google carry a higher valuation than IBM). The real problem for investors, is it may take eight to ten years to justify their present valuation.
- marvin 11y ago
  They'll have to build some billion-dollar battery factories first. (Or someone else must). This will take some 5 years per factory, so that's a clear leading indicator. Also, most new cars will be electric in 20 years, and that's a lot of cars.

MichaelGG 11y ago

Perfection or just some growth? Their volume is really small, isn't it? If they just manage to sell, I dunno, 10x more cars then that P/E would drop right down no?

bradleyjg 11y ago
Assuming margins hold up (or improve).

weinzierl 11y ago

Probably not everyone knows what PE is (I didn't): The price to earnings ratio (PE Ratio) is the measure of the share price relative to the annual net income earned by the firm per share. PE ratio shows current investor demand for a company share. A high PE ratio generally indicates increased demand because investors anticipate earnings growth in the future. The PE ratio has units of years, which can be interpreted as the number of years of earnings to pay back purchase price.[1] According to [1] GE is 12, Ford 17, Nissan 10. Possible source for the P/E 130 [2]. [1] https://ycharts.com/companies/TSLA/pe_ratio https://ycharts.com/companies/TSLA/pe_ratio [2] http://www.nasdaq.com/symbol/tsla/pe-ratio http://www.nasdaq.com/symbol/tsla/pe-ratio

repsilat 11y ago
The fact that it's net income is very important here -- Tesla are rapidly scaling up production, which means lots of capital investment with a view to increasing future revenues (and profits.)