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Why should Tesla be worth 600B if they produce 2 million cars a year? Toyota makes 10M cars per year and has a market cap of less than 300B. Future growth is a

by gizmo 8y ago

Why should Tesla be worth 600B if they produce 2 million cars a year? Toyota makes 10M cars per year and has a market cap of less than 300B. Future growth is already baked into Tesla's current valuation of 60B. They're not making any money today (in fact they're losing billions) but they have a high market cap because they might become profitable years from now. Once (if) they become a mature car manufacturer their valuation multiple will go way down. They'll be judged on their profit margin and FCF like any other car manufacturer. Your best case scenario of Tesla growing their market cap by 550B in the next 2 years is completely unrealistic. Even Facebook didn't grow that quickly, and their profit margin is second to none.

slg 8y ago
Tesla's best case scenario is much more than an automaker. They also have hopes of being an energy company, a battery company, a transportation company, and a logistics company. There is still a lot of debate whether any of those will actually become profitable (and I think 2020 is a very aggressive timeline for any of this to happen), but there are huge potential revenue streams for Tesla that simply don't exist for other automakers like Toyota.
- TAForObvReasons 8y ago
  Toyota or Ford or any other car company can enter any of those fields, either directly or through investment. That they choose not to probably indicates that the risk/reward doesn't make sense for them, and they probably aren't worth that much if Tesla manages to pivot. They chose not to play in EVs until recently, for example, because the market appetite wasn't there
  - gleenn 8y ago
    You gotta hand it to Elon for stirring the appetite for EVs though. What makes you think he can't do similar things in other markets?
    - threeseed 8y ago
      Because he is overcapitalised with his existing projects. Simple as that really.
    - rootusrootus 8y ago
      I am not convinced he really changed the market's desire for EVs. He made a halo car, and now he is selling the baby version for Average Joe. I think the success of the Model 3 has a lot more to do with the brand than it does with it being an EV.
      - stevehawk 8y ago
        Have to admit I agree with this. He didn't change the appetite he just recognized that it was better to make a $120k EV than a $20k EV.
      - colordrops 8y ago
        It's simply ignoring reality to not acknowledge Tesla's center role in popularizing EVs. It's not even a question.
      - solarkraft 8y ago
        Tesla has vastly changed public perception of EVs, changing demand & enabling current production ramp up of cheaper models.
      - colordrops 8y ago
        By the way, why do you think the brand is popular if not for their EVs?
  - slg 8y ago
    I am surprised to see this type of argument on HN of all places. One of the primary goals of any start up is to either create a new market or to serve a market that an incumbent is failing to properly serve. You can't just assume that because a company like Toyota hasn't done any of these things yet that there is no potential to gain from them. There are countless reasons why traditional powers fail to innovate and are eventually challenged by more forward thinking companies. I have no idea if Tesla will be that company long term. But the potential is there and that potential is what is fueling the hype.
    - bicubic 8y ago
      GM/Toyota have the resources to start operating in the same markets that Tesla has ambitions for. And they are certainly keeping an eye on Tesla's actions. After watching what Tesla is doing, they have chosen not to invest those resources even though if they did, they would beat Tesla at its own game quite easily because they eclipse it both in capital and experience. Either their analysts are wrong and failing to see a winning strategy here, or there is no winning strategy. One of these two statements must be true. I've put my money on option #2, but I'm aware that large competitors aren't idiots and there is a risk here. Elon Musk has also publicly stated that he wants the other big players to compete with Tesla. He doesn't actually care if Tesla is ever profitable or not, he just wants to force the world to transition off fossil fuels by dispelling the myths sown by the oil industry with concrete examples of success. It is stupid to ignore Musk's stance on this matter as an investor.
      - slg 8y ago
        Using this logic every start up would fail as soon as they showed their business model could lead to success and a bigger company swooped in a with their overwhelming capital and experience.
        bicubic 8y ago
        Many do, for that exact reason. If you ever pitch your startup idea to a VC, you're expected to explain how you're going to deal with this risk.
withdavidli 8y ago
>Once (if) they become a mature car manufacturer their valuation multiple will go way down. Somewhat answered your own question . It's if the market values Tesla as a mature company or a continues to value it as a growth company. When have we seen Elon rest with a successful product? Tesla is more than just cars. And Elon's answer to Gali (hyperchange YouTube channel) question during earnings about moats states his mindset clearly. He's about innovation. Innovate faster than competitor always. If Tesla can be cash positive, Elon will do what Bezos does. Demand that as much money as possible is reinvested. They're not going to be like Apple with tons of money sitting on the side.
WheelsAtLarge 8y ago
I suspect that investors are looking at Tesla to be highly automated and have a high return on capital. There's also the hype so it keeps on going up looking for the last fool that buys before the stock's true value is found. It's easier to buy the stock than to figure out its future value. I think Tesla won't be just a car company. Eventually, they will be a company with multiple branches in the same idea as Alphabet. But that's way in the future. First, they have to survive to profitability.
- threeseed 8y ago
  Musk himself said they made mistakes in trying to automate everything when manual approaches work better. And all cars made today are highly automated anyway so not sure why this is a unique advantage. More and more Tesla is looking like a traditional car company. Especially as the traditional car makers are moving aggressively into EV.
SpecialistEMT 8y ago
Because the op makes stuff out of their ass

by gizmo 8y ago

slg 8y ago

Tesla's best case scenario is much more than an automaker. They also have hopes of being an energy company, a battery company, a transportation company, and a logistics company. There is still a lot of debate whether any of those will actually become profitable (and I think 2020 is a very aggressive timeline for any of this to happen), but there are huge potential revenue streams for Tesla that simply don't exist for other automakers like Toyota.

TAForObvReasons 8y ago
Toyota or Ford or any other car company can enter any of those fields, either directly or through investment. That they choose not to probably indicates that the risk/reward doesn't make sense for them, and they probably aren't worth that much if Tesla manages to pivot. They chose not to play in EVs until recently, for example, because the market appetite wasn't there
- gleenn 8y ago
  You gotta hand it to Elon for stirring the appetite for EVs though. What makes you think he can't do similar things in other markets?
  - threeseed 8y ago
    Because he is overcapitalised with his existing projects. Simple as that really.
  - rootusrootus 8y ago
    I am not convinced he really changed the market's desire for EVs. He made a halo car, and now he is selling the baby version for Average Joe. I think the success of the Model 3 has a lot more to do with the brand than it does with it being an EV.
    - stevehawk 8y ago
      Have to admit I agree with this. He didn't change the appetite he just recognized that it was better to make a $120k EV than a $20k EV.
    - colordrops 8y ago
      It's simply ignoring reality to not acknowledge Tesla's center role in popularizing EVs. It's not even a question.
    - solarkraft 8y ago
      Tesla has vastly changed public perception of EVs, changing demand & enabling current production ramp up of cheaper models.
    - colordrops 8y ago
      By the way, why do you think the brand is popular if not for their EVs?
- slg 8y ago
  I am surprised to see this type of argument on HN of all places. One of the primary goals of any start up is to either create a new market or to serve a market that an incumbent is failing to properly serve. You can't just assume that because a company like Toyota hasn't done any of these things yet that there is no potential to gain from them. There are countless reasons why traditional powers fail to innovate and are eventually challenged by more forward thinking companies. I have no idea if Tesla will be that company long term. But the potential is there and that potential is what is fueling the hype.
  - bicubic 8y ago
    GM/Toyota have the resources to start operating in the same markets that Tesla has ambitions for. And they are certainly keeping an eye on Tesla's actions. After watching what Tesla is doing, they have chosen not to invest those resources even though if they did, they would beat Tesla at its own game quite easily because they eclipse it both in capital and experience. Either their analysts are wrong and failing to see a winning strategy here, or there is no winning strategy. One of these two statements must be true. I've put my money on option #2, but I'm aware that large competitors aren't idiots and there is a risk here. Elon Musk has also publicly stated that he wants the other big players to compete with Tesla. He doesn't actually care if Tesla is ever profitable or not, he just wants to force the world to transition off fossil fuels by dispelling the myths sown by the oil industry with concrete examples of success. It is stupid to ignore Musk's stance on this matter as an investor.
    - slg 8y ago
      Using this logic every start up would fail as soon as they showed their business model could lead to success and a bigger company swooped in a with their overwhelming capital and experience.
      - bicubic 8y ago
        Many do, for that exact reason. If you ever pitch your startup idea to a VC, you're expected to explain how you're going to deal with this risk.

withdavidli 8y ago

>Once (if) they become a mature car manufacturer their valuation multiple will go way down. Somewhat answered your own question . It's if the market values Tesla as a mature company or a continues to value it as a growth company. When have we seen Elon rest with a successful product? Tesla is more than just cars. And Elon's answer to Gali (hyperchange YouTube channel) question during earnings about moats states his mindset clearly. He's about innovation. Innovate faster than competitor always. If Tesla can be cash positive, Elon will do what Bezos does. Demand that as much money as possible is reinvested. They're not going to be like Apple with tons of money sitting on the side.

WheelsAtLarge 8y ago

I suspect that investors are looking at Tesla to be highly automated and have a high return on capital. There's also the hype so it keeps on going up looking for the last fool that buys before the stock's true value is found. It's easier to buy the stock than to figure out its future value. I think Tesla won't be just a car company. Eventually, they will be a company with multiple branches in the same idea as Alphabet. But that's way in the future. First, they have to survive to profitability.

threeseed 8y ago
Musk himself said they made mistakes in trying to automate everything when manual approaches work better. And all cars made today are highly automated anyway so not sure why this is a unique advantage. More and more Tesla is looking like a traditional car company. Especially as the traditional car makers are moving aggressively into EV.

SpecialistEMT 8y ago

Because the op makes stuff out of their ass