4 ms·

At that valuation of 600B the assumption is that they’ll be more profitable than all the other leading car companies combined! Their current valuation is not j

At that valuation of 600B the assumption is that they’ll be more profitable than all the other leading car companies combined! Their current valuation is not justified by even the most optimistic projections IMO, though their holistic view of energy should help (they can become a lifestyle brand, not just a car company), but it’ll take a decade to grow into this valuation. Even Musk thought it was overvalued and said so twice this year when it was worth a lot less. As you say that makes this the perfect time to raise (again).

bryanlarsen 6y ago
Most of the other large car companies have debt loads over $100 billion. This means two things: - they have significant amounts of capitalization that don't show up in their market capitalization. "Enterprise Value" (which includes debt) is a more accurate representation of their size. - Their stock prices reflect a significant risk of bankruptcy. If Ford doesn't go bankrupt, it's worth a lot more than $9. If it does, it's worth $0. This analyst rates that probability at 42%: https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bankruptcy https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bank...
- mdorazio 6y ago
  I'm guessing you purposely left out the Japanese OEMs in your assessment? Their debt to equity ratios are pretty low.
  - bryanlarsen 6y ago
    Correct, I should have put more qualification on "most".
- SilasX 6y ago
  Hm, wouldn't you want to look at Ford credit default swaps to quantify that? Here's what I found for Ford CDS price history, don't know offhand how to translate that into a bankruptcy probability: https://www.assetmacro.com/united-states/credit-default-swaps-cds/ford-motor-company-credit-default-swaps-f-3y-cds/ https://www.assetmacro.com/united-states/credit-default-swap...
  - lordnacho 6y ago
    Long, long time since I did this, but back then you made an assumption that you'd get 40% of the bond's principle in case of a default. I recently asked a credit guy about this and he also gave me this magic figure. So from there you basically are saying at 100% chance of default, you get 40, and at zero you get 100. That gives you some amount that balances the payment from the CDS with the value of the bonds.
- grey-area 6y ago
  The largest competitors now are Toyota, VW, Daimler, GM, Honda. Their combined market cap is about 400B. Do those companies have high debt loads? I agree competitors will be in trouble in the coming EV transition and some are discounted, but I do also think Tesla is now vastly overvalued by the market. They've only just started making a profit, and they are still burning huge amounts of cash. I wouldn't be worried about solvency but I would worry that the future return promised by their valuation is extraordinary. Tesla has risen 800% in the last year, that seems to be unjustified by their progress in the same time frame.
  - intotheabyss 6y ago
    The more likely scenario is that the next decades gains are just going to be priced in. Speculators think that Tesla will be a 1T company (in 2020 dollars) by the end of the 2020s, and I don't disagree, but a lot has to go right for that to be true. That means if it hits 1T within the next year, I suspect they'll have a decade of stagnation like the tech companies did after the dotcom bubble. But also, the fact that I have to stress that the valuation is in 2020 dollars should tell us all we need to know about this current market and the valuations we're seeing. Flood the markets with dollars, and you'll have outlandish valuations.
    - grey-area 6y ago
      Yes markets tend to underprice and then overprice, then maybe drift down to a sensible valuation over time as companies grow. So perhaps we'll just see some stagnation in the stock price but there's no sign of it yet. This does feel like a speculative bubble and we've reached the FOMO stage where people think things are overvalued but invest anyway, because everyone else is. 25% of the S&P is in the largest 5 companies (all tech), market cap to GDP is at an all time high of 183.7% for the US. US assets in particular seems overvalued to me at present and heavily distorted by the massive QE programs that have been running since 2008 and gone into overdrive this year.
  - bryanlarsen 6y ago
    Toyota: $18B VW: E200B Daimler: E160B GM: $100B Honda $65B Therefore their combined Enterprise value is about $1T.

bryanlarsen 6y ago

Most of the other large car companies have debt loads over $100 billion. This means two things: - they have significant amounts of capitalization that don't show up in their market capitalization. "Enterprise Value" (which includes debt) is a more accurate representation of their size. - Their stock prices reflect a significant risk of bankruptcy. If Ford doesn't go bankrupt, it's worth a lot more than $9. If it does, it's worth $0. This analyst rates that probability at 42%: https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bankruptcy https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bank...

mdorazio 6y ago
I'm guessing you purposely left out the Japanese OEMs in your assessment? Their debt to equity ratios are pretty low.
- bryanlarsen 6y ago
  Correct, I should have put more qualification on "most".
SilasX 6y ago
Hm, wouldn't you want to look at Ford credit default swaps to quantify that? Here's what I found for Ford CDS price history, don't know offhand how to translate that into a bankruptcy probability: https://www.assetmacro.com/united-states/credit-default-swaps-cds/ford-motor-company-credit-default-swaps-f-3y-cds/ https://www.assetmacro.com/united-states/credit-default-swap...
- lordnacho 6y ago
  Long, long time since I did this, but back then you made an assumption that you'd get 40% of the bond's principle in case of a default. I recently asked a credit guy about this and he also gave me this magic figure. So from there you basically are saying at 100% chance of default, you get 40, and at zero you get 100. That gives you some amount that balances the payment from the CDS with the value of the bonds.
grey-area 6y ago
The largest competitors now are Toyota, VW, Daimler, GM, Honda. Their combined market cap is about 400B. Do those companies have high debt loads? I agree competitors will be in trouble in the coming EV transition and some are discounted, but I do also think Tesla is now vastly overvalued by the market. They've only just started making a profit, and they are still burning huge amounts of cash. I wouldn't be worried about solvency but I would worry that the future return promised by their valuation is extraordinary. Tesla has risen 800% in the last year, that seems to be unjustified by their progress in the same time frame.
- intotheabyss 6y ago
  The more likely scenario is that the next decades gains are just going to be priced in. Speculators think that Tesla will be a 1T company (in 2020 dollars) by the end of the 2020s, and I don't disagree, but a lot has to go right for that to be true. That means if it hits 1T within the next year, I suspect they'll have a decade of stagnation like the tech companies did after the dotcom bubble. But also, the fact that I have to stress that the valuation is in 2020 dollars should tell us all we need to know about this current market and the valuations we're seeing. Flood the markets with dollars, and you'll have outlandish valuations.
  - grey-area 6y ago
    Yes markets tend to underprice and then overprice, then maybe drift down to a sensible valuation over time as companies grow. So perhaps we'll just see some stagnation in the stock price but there's no sign of it yet. This does feel like a speculative bubble and we've reached the FOMO stage where people think things are overvalued but invest anyway, because everyone else is. 25% of the S&P is in the largest 5 companies (all tech), market cap to GDP is at an all time high of 183.7% for the US. US assets in particular seems overvalued to me at present and heavily distorted by the massive QE programs that have been running since 2008 and gone into overdrive this year.
- bryanlarsen 6y ago
  Toyota: $18B VW: E200B Daimler: E160B GM: $100B Honda $65B Therefore their combined Enterprise value is about $1T.