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If I have to answer, I’d say $1.25MM vs $9k is more dissimilar than Tesla vs GM. But unless you believe that both Tesla and GM won’t grow sales, comparing marke
by pinky1417 6y ago
If I have to answer, I’d say $1.25MM vs $9k is more dissimilar than Tesla vs GM. But unless you believe that both Tesla and GM won’t grow sales, comparing market cap to cars sold in the last year(s) has only limited usefulness.
If we assume Tesla will grow units sold while GM will remain about static AND we assume GM is fairly valued (while assuming unit margins are the same for both companies), then it tells us Tesla needs to sell about 140 times as many cars per year in the future to justify its current stock price. Now, if you assume Tesla’s cars will have a margin 4x as large as GM’s and that GM’s business is undervalued by half, then if my math is correct, Tesla needs to sell only 17 times as many cars per year ($1.25MM/4=$312k, $9k*2=$18k, $312k/$18k=17). That 17x increase doesn’t seem totally unreasonable.
Of course, this also assumes that Tesla will make its money off of cars sold and not some other wild Muskian idea: if he develops world-beating self-driving software selling at 90% gross margins or wisely acquires other companies like Henry Singleton did at Teledyne, we could all be saying a $5 trillion market cap is cheap for Tesla in a few years! That said, as an investor, I wouldn’t buy today’s Tesla at even half its current stock price nor would I bet against Elon Musk (especially by shorting!). A lot of things have to go right for Tesla to justify its stock price; I just don’t have any way of predicting what Musk will do next!
- paulmendoza 6y agoTesla can capture more profit per car than GM has a chance to because Tesla doesn’t have third parties doing... - seats - selling - soon batteries - ai chip - soon insurance - charge stations is like if GM could own the gas stations This doesn’t even count the growth of the other product lines like utility grid storage and solar roof and Uber like services.
- jgalt212 6y ago> Uber like services Yes, 1 million robotaxis by the end of 2020. https://www.thedrive.com/news/38129/elon-musk-promised-1-million-tesla-robotaxis-by-the-end-of-2020-where-are-they https://www.thedrive.com/news/38129/elon-musk-promised-1-mil...
- pinky1417 6y agoRight, hence my 4x margin assumption for my back-of-the-envelope math. But I still think there's a limit to what any one company can do. The insurance company Allstate could be worth $1T if they end up entering a business producing revolutionary proprietary alternative fuel technology! Obviously, I think Tesla with Musk at the helm has a better chance of creating new markets than GM, Allstate, Exxon, etc., but I realize that there's some limit to what one company can do. Once your company's market cap gets in the trillion-dollar category, and the total market cap of the US stock market is 50 trillion, you shouldn't expect a 100-bagger.
- JetSpiegel 6y ago> because Tesla doesn’t have third parties doing... Big deal, they barely produce any cars. If Musk threatened to go to jail because a governor did not let him keep his plant open through COVID, he will be eviscerated by some UAW guy and will outsource the entire production ASAP.