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Here's a two-second method to determine whether TSLA is overpriced: currently, their market cap is $659B. The combined caps of Toyota, Volkswagen, Mercedes-Benz

by sb057 6y ago

Here's a two-second method to determine whether TSLA is overpriced: currently, their market cap is $659B. The combined caps of Toyota, Volkswagen, Mercedes-Benz, Porsche, BMW, Honda, General Motors, Ford, and Nissan is only $629B. So unless Tesla is worth $30 billion more than all of those companies combined, either those companies are undervalued, or Tesla is massively overvalued. Keep in mind, Tesla sold 367,500 cars in 2019, while those other companies sold over 34 million cars, or nearly 10,000% more. I realize that stock prices are based on future profits, and working capital is factored into it, but still, I just don't see the rationale in an ownership stake in Tesla being that much more valuable.

kerng 6y ago
Tesla is the innovator in this space for 10+ years. Only a few of the companies are all in on electric- and 10 years from now there will be no new old school cars. Some of them have even giant liabilities because of the mess to the environment they have created, which also damaged their brand. Some of them probably wouldn't even exist anymore was it not for government backing/looking away and in some cases even intervention. Many of the companies mentioned are quite far behind, and will face severe challenges in the coming years trying to adjust with little marging for error. But most importantly Tesla is also a battery company! Who knows, most of the other players might even have to buy batteries from Tesla. Gut feeling tells me that Tesla will still grow significantly, especially if they start selling batteries to other markets at scale, but also the car business itself will experience a tremendous growth.
- xnx 6y ago
  Tesla car sales will grow, but their stock continuing to grow is not sustainable. Tesla certainly make desirable cars, but I don't see their product being hard to replicate should any other manufacturer make a serious effort. Other manufacturers will make a serious effort when it makes financial sense to.
- ashtonkem 6y ago
  The only way for the stock price to be reasonable is if Tesla completely replaces all of the listed car companies combined. That is not realistic, no matter what you think of Tesla’s products.
  - shyn3 6y ago
    I think they will all die because they are too far to innovate it's why I finally bought shares after the split [1]. [1] https://news.ycombinator.com/item?id=25214484 https://news.ycombinator.com/item?id=25214484
    - fakedang 6y ago
      Or maybe you're trying to rationalize your investment thesis after buying into the stock. - Sincerely, a TSLA hodler since summer 2019, when I bought my first car, a Tesla. I'll be holding the stock I have, but I don't think traditional car companies are going away any time soon. On the contrary, I'm thinking of getting a Taycan, a BMW or some other EV car. Tesla isn't overpriced per se, but once the spigot of cheap debt and printed money stops, we might see a good decline from the stock market. Not that I'm going to bet against the market either.
      - shyn3 6y ago
        My investment thesis was made prior to my purchase, not after. I make a decision and I stick to it. This is a 5-year investment for me.
        fakedang 6y ago
        I didn't say you made your thesis after buying it. I'm saying you might be overweighing your thesis when you bought into the stock, being the natural hopeful optimists we all are. That being said, there's always the chance that Tesla could be an Apple for cars, which pretty well sums up my opinion about the car itself - great design, but lots of sharks in the water. Of course, Apple has it much easier.
    - 6y ago
nico42 6y ago
"Skeptics say, it would have to sell every book being sold in the world today to justify its stock price" - Amazon in 1997 [1]. The stock is 50 times higher now. I have no idea if history will repeat itself, but I find the parallel interesting [1] https://youtu.be/8SSj7KwBwr8?t=660 https://youtu.be/8SSj7KwBwr8?t=660
- Aeronwen 6y ago
  They were overvalued in 1997. Even they knew it and started pivoting away from being just a book store shortly after.
abc_lisper 6y ago
You could have said the same thing about Apple 12 years ago.
- jeffbee 6y ago
  Apple 12 years ago was only worth $50 billion. At the time, Apple had higher revenues (~40 billion dollars a year) and way higher margins. They made $14 billion gross profits in the year 2008, in 2008 dollars, while Tesla will have gross profits of only $6 billion 2020 dollars this year.
  - abc_lisper 6y ago
    I was comparing it to Nokia then
mattnewton 6y ago
I too think tesla is overvalued, but your comparison to ICE companies strikes me as missing that they have fundamentally different technologies those other companies are no where near developing on their own and will likely have to license. Tesla investors are betting that a lot of the ICE based car expertise will be worth just pennies on the dollar if the shift to electric cars happens en masse.
- tomashertus 6y ago
  How it can happen without them? To build cars you need infrastructure, factories, and workers and these companies have that already. There won’t be mass shift without these companies driving the shift, simply because there won’t be enough cars for the demand.
- foepys 6y ago
  > and will likely have to license There are already a dozen other electric models on the streets. Why should they have to license from Tesla? The electric engine part of the vehicles is actually not that hard - it's the battery that is complicated and Tesla doesn't even produce the batteries in their cars. That's done by Panasonic. VW, Toyota, Nissan have supply chain management under control, they don't need to learn it from Tesla.
  - saalweachter 6y ago
    Heck, let's also not forget that patents aren't copyright. Patents last 20 years, and it's not unusual for 5 of those to past between filing and the invention being turned into a usable product that hits the market.
  - pkulak 6y ago
    That new motor that Tesla uses is pretty amazing, and must at least be difficult since almost no other companies use it and instead just deal with reduced range and efficiency.
    - gamblor956 6y ago
zaroth 6y ago
You’re trying to value a company without looking at debt, so you’re missing the big picture. Total Debt: VW. $237B GM. $192B Toyota. $190B Ford. $155B Daimler.$108B Nissan. $42B BMW. $80B Honda. $42B So your market cap analysis missed ~$1 trillion of enterprise value in your comparison set. Simply put, the stock market cap is the total company value minus the debt. Tesla debt by comparison is $14 billion. All those companies together being worth only about 3x Tesla is perhaps surprising, but the market is weighting for the possibility that their entire current product lines will be virtually unsellable if not illegal to sell in a decade or so.
- ksec 6y ago
  Thank You. Are there any easy way to simply get this Data without manually looking up each Stock's balance sheet?
  - zaroth 6y ago
    Basically that’s what I had to do, but on macrotrends.net
    - ksec 6y ago
      Thank You again for your time and input.
- deleted 6y ago
  [deleted]
- statguy 6y ago
  Tesla sells less than 1% of the vehicles that these companies sell combined. Are you seriously suggesting that Tesla production will increase by 100x within a decade? Even if we assume that 100% of the vehicles sold in a decade are electric (highly unlikely), the majority of the increase is likely to come from the other companies. They are not going to sit still and let Tesla devour them.
  - 6y ago
pazimzadeh 6y ago
What your analysis is missing is the profit margin of each car maker. Never mind market share, what is Tesla's profit share? Does someone know this?
- quickthrowman 6y ago
  Last quarter TSLA reported earnings of 62 cents per share. That makes for a P/E ratio of 1321 at $695/share. (Per Thinkorswim)
- jeffbee 6y ago
  Tesla's profit margins in the most recent quarter are typical for the industry, ~20% gross, ~10% EBITDA, ~2-3% after tax net margin. So their profit share of the industry is similar to their market share (i.e. very small).
- gamblor956 6y ago
  Tesla's profit share is small enough that it is a rounding error. It is not the Apple of the automotive world. Quarterly profits for the most recent quarter (Q3 for most companies, Q2 for Honda): Toyota: $4.6 billion. Honda: $4 billion. GM: $4 billion. VW: $3.8 billion. Ford: $2.4 billion. Fiat: $1.4 million (not a typo, that is an m there.). In all cases, these profits were below their 2019 quarterly profits for the same quarter. Total of approximately 18.8 billion. Tesla: $331 million, or approximately 1.5% of the Q3 profit share. (Note that Hyundai had a loss and so is excluded from the profit share calculation. In all cases, these are global numbers. https://www.caranddriver.com/news/a34602700/auto-sales-profits-third-quarter-2020/ https://www.caranddriver.com/news/a34602700/auto-sales-profi.... For all automakers except Tesla and Fiat, profits are related to the sale of automobiles. Fiat's profit is related to a special one-time accounting event, and Tesla's profit, as with all of its previous quarterly profits, relates to the sale of credits to other automakers; Tesla has yet to have a profitable quarter based on the sale of vehicles.)
ksec 6y ago
>their market cap is $659B. WOW. I knew their stock price has been like a rocket but I dont follow them closely. ( They were over priced ages ago ). But $660B! Shouldn't that make Elon Musk the richest person on earth? I remember he owns 20% of Tesla? Edit: Turns out Jeff Bezos [1], even after the divorce settlement , has a net worth of ~$187B. Elon is at $146B. Until SpaceX's IPO at ~$100B [2], which will add roughly $54B to his net worth... he will be the richest on Earth. I mean I dont know how Tesla is a $600B company, but I sure as hell think SpaceX is worth a lot more than $100B. [1] https://www.forbes.com/sites/sergeiklebnikov/2020/12/19/elon-musk-is-nearly-10-billion-richer-this-week-with-tesla-on-the-verge-of-joining-the-sp-500/ https://www.forbes.com/sites/sergeiklebnikov/2020/12/19/elon... [2] https://www.forbes.com/sites/daviddawkins/2020/10/23/elon-musks-spacex-gets-bullish-100-billion-valuation-from-morgan-stanley-double-what-investors-said-it-was-worth-in-august/?sh=14238db86e79 https://www.forbes.com/sites/daviddawkins/2020/10/23/elon-mu...
- Cu3PO42 6y ago
  Not the richest, but the second richest according to current estimates. Second to Jeff Bezos only, who also massively increased his wealth this year. https://www.forbes.com/real-time-billionaires/ https://www.forbes.com/real-time-billionaires/ (I had to disable essentially all content blockers to get this site to load.)
bryanlarsen 6y ago
Toyota, Volkswagen, Mercedes-Benz, Porsche, BMW, Honda, General Motors, Ford, and Nissan combined have almost a trillion dollars worth of debt. So while their market cap is $629B, their value is north of $1.5T. Think of it like a house. If you pay me $200K for my house plus assume my $300K mortgage, then you say that the value of my house was $500K. When comparing values of companies, use the "enterprise value" metric, not the "market cap" metric. Enterprise value metrics will still show an overpriced Tesla, just slightly less overpriced.
valuearb 6y ago
Ignoring debt and actual enterprise values, the more important point is that any business valuation produced by comparing to market prices of other businesses is flawed at best. Unless you are one if the few and nearly extinct economists who believe the stock market is perfectly efficient, comparing by market price often leads to justifying one mis-pricing by another mis-pricing. For example, Yahoos ridiculous pricing during the bubble could always be justified by even more ridiculous prices for companies with near zero revenues by pointing out Yahoo had revenues and was growing them incredibly fast. The only question you need to ask about Tesla is how can a $30B revenue company be worth a $680B valuation? How long before Tesla’s earnings catch up to the risk free returns on $680B (roughly $32B/year)? Assuming an optimistic 15% after tax profit margin for the rest of its life, Tesla would have to grow revenues seven times. At 15% a year, revenues double ever 5 years. So in roughly 14 years Tesla would be reach an annual after tax profit of $32B. And it would still be $200B behind in total net profits, it takes nearly 20 years for Tesla to generate more total net profit than the risk free investment. Is that reasonable? It all depends on the risk Tesla falls short, and whatever assumptions are in your DCF analysis. That’s a long time to catch up, I’m gonna go out on a limb and say far from a slam dunk.

by sb057 6y ago

kerng 6y ago

Tesla is the innovator in this space for 10+ years. Only a few of the companies are all in on electric- and 10 years from now there will be no new old school cars. Some of them have even giant liabilities because of the mess to the environment they have created, which also damaged their brand. Some of them probably wouldn't even exist anymore was it not for government backing/looking away and in some cases even intervention. Many of the companies mentioned are quite far behind, and will face severe challenges in the coming years trying to adjust with little marging for error. But most importantly Tesla is also a battery company! Who knows, most of the other players might even have to buy batteries from Tesla. Gut feeling tells me that Tesla will still grow significantly, especially if they start selling batteries to other markets at scale, but also the car business itself will experience a tremendous growth.

xnx 6y ago
Tesla car sales will grow, but their stock continuing to grow is not sustainable. Tesla certainly make desirable cars, but I don't see their product being hard to replicate should any other manufacturer make a serious effort. Other manufacturers will make a serious effort when it makes financial sense to.
ashtonkem 6y ago
The only way for the stock price to be reasonable is if Tesla completely replaces all of the listed car companies combined. That is not realistic, no matter what you think of Tesla’s products.
- shyn3 6y ago
  I think they will all die because they are too far to innovate it's why I finally bought shares after the split [1]. [1] https://news.ycombinator.com/item?id=25214484 https://news.ycombinator.com/item?id=25214484
  - fakedang 6y ago
    Or maybe you're trying to rationalize your investment thesis after buying into the stock. - Sincerely, a TSLA hodler since summer 2019, when I bought my first car, a Tesla. I'll be holding the stock I have, but I don't think traditional car companies are going away any time soon. On the contrary, I'm thinking of getting a Taycan, a BMW or some other EV car. Tesla isn't overpriced per se, but once the spigot of cheap debt and printed money stops, we might see a good decline from the stock market. Not that I'm going to bet against the market either.
    - shyn3 6y ago
      My investment thesis was made prior to my purchase, not after. I make a decision and I stick to it. This is a 5-year investment for me.
      - fakedang 6y ago
        I didn't say you made your thesis after buying it. I'm saying you might be overweighing your thesis when you bought into the stock, being the natural hopeful optimists we all are. That being said, there's always the chance that Tesla could be an Apple for cars, which pretty well sums up my opinion about the car itself - great design, but lots of sharks in the water. Of course, Apple has it much easier.
  - 6y ago

nico42 6y ago

"Skeptics say, it would have to sell every book being sold in the world today to justify its stock price" - Amazon in 1997 [1]. The stock is 50 times higher now. I have no idea if history will repeat itself, but I find the parallel interesting [1] https://youtu.be/8SSj7KwBwr8?t=660 https://youtu.be/8SSj7KwBwr8?t=660

Aeronwen 6y ago
They were overvalued in 1997. Even they knew it and started pivoting away from being just a book store shortly after.

abc_lisper 6y ago

You could have said the same thing about Apple 12 years ago.

jeffbee 6y ago
Apple 12 years ago was only worth $50 billion. At the time, Apple had higher revenues (~40 billion dollars a year) and way higher margins. They made $14 billion gross profits in the year 2008, in 2008 dollars, while Tesla will have gross profits of only $6 billion 2020 dollars this year.
- abc_lisper 6y ago
  I was comparing it to Nokia then

mattnewton 6y ago

I too think tesla is overvalued, but your comparison to ICE companies strikes me as missing that they have fundamentally different technologies those other companies are no where near developing on their own and will likely have to license. Tesla investors are betting that a lot of the ICE based car expertise will be worth just pennies on the dollar if the shift to electric cars happens en masse.

tomashertus 6y ago
How it can happen without them? To build cars you need infrastructure, factories, and workers and these companies have that already. There won’t be mass shift without these companies driving the shift, simply because there won’t be enough cars for the demand.
foepys 6y ago
> and will likely have to license There are already a dozen other electric models on the streets. Why should they have to license from Tesla? The electric engine part of the vehicles is actually not that hard - it's the battery that is complicated and Tesla doesn't even produce the batteries in their cars. That's done by Panasonic. VW, Toyota, Nissan have supply chain management under control, they don't need to learn it from Tesla.
- saalweachter 6y ago
  Heck, let's also not forget that patents aren't copyright. Patents last 20 years, and it's not unusual for 5 of those to past between filing and the invention being turned into a usable product that hits the market.
- pkulak 6y ago
  That new motor that Tesla uses is pretty amazing, and must at least be difficult since almost no other companies use it and instead just deal with reduced range and efficiency.
  - gamblor956 6y ago

zaroth 6y ago

You’re trying to value a company without looking at debt, so you’re missing the big picture. Total Debt: VW. $237B GM. $192B Toyota. $190B Ford. $155B Daimler.$108B Nissan. $42B BMW. $80B Honda. $42B So your market cap analysis missed ~$1 trillion of enterprise value in your comparison set. Simply put, the stock market cap is the total company value minus the debt. Tesla debt by comparison is $14 billion. All those companies together being worth only about 3x Tesla is perhaps surprising, but the market is weighting for the possibility that their entire current product lines will be virtually unsellable if not illegal to sell in a decade or so.

ksec 6y ago
Thank You. Are there any easy way to simply get this Data without manually looking up each Stock's balance sheet?
- zaroth 6y ago
  Basically that’s what I had to do, but on macrotrends.net
  - ksec 6y ago
    Thank You again for your time and input.
deleted 6y ago
[deleted]
statguy 6y ago
Tesla sells less than 1% of the vehicles that these companies sell combined. Are you seriously suggesting that Tesla production will increase by 100x within a decade? Even if we assume that 100% of the vehicles sold in a decade are electric (highly unlikely), the majority of the increase is likely to come from the other companies. They are not going to sit still and let Tesla devour them.
- 6y ago

pazimzadeh 6y ago

What your analysis is missing is the profit margin of each car maker. Never mind market share, what is Tesla's profit share? Does someone know this?

quickthrowman 6y ago
Last quarter TSLA reported earnings of 62 cents per share. That makes for a P/E ratio of 1321 at $695/share. (Per Thinkorswim)
jeffbee 6y ago
Tesla's profit margins in the most recent quarter are typical for the industry, ~20% gross, ~10% EBITDA, ~2-3% after tax net margin. So their profit share of the industry is similar to their market share (i.e. very small).
gamblor956 6y ago
Tesla's profit share is small enough that it is a rounding error. It is not the Apple of the automotive world. Quarterly profits for the most recent quarter (Q3 for most companies, Q2 for Honda): Toyota: $4.6 billion. Honda: $4 billion. GM: $4 billion. VW: $3.8 billion. Ford: $2.4 billion. Fiat: $1.4 million (not a typo, that is an m there.). In all cases, these profits were below their 2019 quarterly profits for the same quarter. Total of approximately 18.8 billion. Tesla: $331 million, or approximately 1.5% of the Q3 profit share. (Note that Hyundai had a loss and so is excluded from the profit share calculation. In all cases, these are global numbers. https://www.caranddriver.com/news/a34602700/auto-sales-profits-third-quarter-2020/ https://www.caranddriver.com/news/a34602700/auto-sales-profi.... For all automakers except Tesla and Fiat, profits are related to the sale of automobiles. Fiat's profit is related to a special one-time accounting event, and Tesla's profit, as with all of its previous quarterly profits, relates to the sale of credits to other automakers; Tesla has yet to have a profitable quarter based on the sale of vehicles.)

ksec 6y ago

>their market cap is $659B. WOW. I knew their stock price has been like a rocket but I dont follow them closely. ( They were over priced ages ago ). But $660B! Shouldn't that make Elon Musk the richest person on earth? I remember he owns 20% of Tesla? Edit: Turns out Jeff Bezos [1], even after the divorce settlement , has a net worth of ~$187B. Elon is at $146B. Until SpaceX's IPO at ~$100B [2], which will add roughly $54B to his net worth... he will be the richest on Earth. I mean I dont know how Tesla is a $600B company, but I sure as hell think SpaceX is worth a lot more than $100B. [1] https://www.forbes.com/sites/sergeiklebnikov/2020/12/19/elon-musk-is-nearly-10-billion-richer-this-week-with-tesla-on-the-verge-of-joining-the-sp-500/ https://www.forbes.com/sites/sergeiklebnikov/2020/12/19/elon... [2] https://www.forbes.com/sites/daviddawkins/2020/10/23/elon-musks-spacex-gets-bullish-100-billion-valuation-from-morgan-stanley-double-what-investors-said-it-was-worth-in-august/?sh=14238db86e79 https://www.forbes.com/sites/daviddawkins/2020/10/23/elon-mu...

Cu3PO42 6y ago
Not the richest, but the second richest according to current estimates. Second to Jeff Bezos only, who also massively increased his wealth this year. https://www.forbes.com/real-time-billionaires/ https://www.forbes.com/real-time-billionaires/ (I had to disable essentially all content blockers to get this site to load.)

bryanlarsen 6y ago

Toyota, Volkswagen, Mercedes-Benz, Porsche, BMW, Honda, General Motors, Ford, and Nissan combined have almost a trillion dollars worth of debt. So while their market cap is $629B, their value is north of $1.5T. Think of it like a house. If you pay me $200K for my house plus assume my $300K mortgage, then you say that the value of my house was $500K. When comparing values of companies, use the "enterprise value" metric, not the "market cap" metric. Enterprise value metrics will still show an overpriced Tesla, just slightly less overpriced.

valuearb 6y ago

Ignoring debt and actual enterprise values, the more important point is that any business valuation produced by comparing to market prices of other businesses is flawed at best. Unless you are one if the few and nearly extinct economists who believe the stock market is perfectly efficient, comparing by market price often leads to justifying one mis-pricing by another mis-pricing. For example, Yahoos ridiculous pricing during the bubble could always be justified by even more ridiculous prices for companies with near zero revenues by pointing out Yahoo had revenues and was growing them incredibly fast. The only question you need to ask about Tesla is how can a $30B revenue company be worth a $680B valuation? How long before Tesla’s earnings catch up to the risk free returns on $680B (roughly $32B/year)? Assuming an optimistic 15% after tax profit margin for the rest of its life, Tesla would have to grow revenues seven times. At 15% a year, revenues double ever 5 years. So in roughly 14 years Tesla would be reach an annual after tax profit of $32B. And it would still be $200B behind in total net profits, it takes nearly 20 years for Tesla to generate more total net profit than the risk free investment. Is that reasonable? It all depends on the risk Tesla falls short, and whatever assumptions are in your DCF analysis. That’s a long time to catch up, I’m gonna go out on a limb and say far from a slam dunk.