Tesla Part Of “New Big 3”

3 months ago by Eric Loveday 28

Tesla Model 3

“By market value at least, the scrappy Silicon Valley upstart has become one of America’s Big Three.”

States Bloomberg in a recent article comparing the value of several American automakers.

Tesla’s market value has soared of late and it’s likely to rise even higher when the Model 3 launches later this year. The automaker is now valued higher than Nissan and is closing in on Ford and General Motors.

Tesla Drive to Believe

Bloomberg notes:

“Ford Motor Co. and General Motors Co., however, are more than a century old and sell millions of cars each year, compared with Tesla’s deliveries of fewer than 80,000 in 2016.

Tesla Chief Executive Officer Elon Musk has forecast between 100,000 and 200,000 sales of the Model 3 in the second half of this year, but few analysts believe he’ll achieve even the low end of that target.”

Editor’s note:  With an update on the Model 3 production status from Tesla’s 4th quarter report on February 23rd, that 100-200k ‘perfect scenerio’ forecast by Musk has now come and gone.  The new production ceiling number of Model 3 vehicles produced in 2017 is around the ~80,000 mark given monthly targets issued by Tesla.

Of course, we know that Tesla continues to lose money year after year, mostly due to massive R&D spending as it attempts to conquer all things related to automotive, as well as solar and energy storage in the future. But Tesla is a long term play. The company strives to become #1 in several markets and hopes to leave any competitors in its dust. As such, loses will mount until the day comes when the company either withers away or turns a massive profit.

In terms of volume, Tesla isn’t in the “big boys” league…yet. But when you look at market cap, they are already there.

As of March 24th, here are the market caps of some of the mainstay automakers:

  • Toyota (TM) – $165.1 billion
  • General Motors (GM) – $52.75 billion
  • Ford (F) – $46.3 billion
  • Tesla (TSLA) – $41.5 billion
  • Nissan (NSANY) – $39.8 billion

Bloomberg concludes:

“For now, Tesla investors are in a purgatory of expectations.”

“Until Tesla’s new products have the opportunity to prove themselves—the Model 3 foremost among them—uncertainty remains. Whether the intervening months are filled with unnerving financial risk or a sense of boundless opportunity depends on investor disposition—and to some extent, the momentum of the stock itself.”

Source: Bloomberg

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28 responses to "Tesla Part Of “New Big 3”"

  1. Don Denesiuk says:

    ” lose money year after year, mostly due to massive R&D spending ”
    Almost. They do spend on R&D but the “losses” are huge infrastructure and tooling investments for the large volume Model 3 and beyond future.

    Things like Gigafactory 1 & 2, the supercharger networks, service and sales outlets around the world are where the majority of the money is going. If Tesla was a hundred year old car company that sold millions of vehicles but had all their infrastructure already in place one could characterize the accounting as losses. But because Tesla is creating a sustainable transportation and power generation/storage future all this loss talk is what the Donald would call fake News.

    1. ¯\_(ツ)_/¯ sven says:

      “They do spend on R&D but the ‘losses’ are huge infrastructure and tooling investments for the large volume Model 3 and beyond future.”

      Nope. The infrastructure and tooling investments are NOT expenses that go on the income statement and affect profit/loss. These expenditures are classified as depreciable assets that go on the balance sheet and affect cash flow and assets/liabilities on the balance sheet, not income/loss on the income statement. Once placed in service, Tesla can start depreciating these assets over their useful lives or estimated productive lives (30 years for the Gigafactory using the straight-line method and 250,000 vehicles for tooling using units-of-production method), with the depreciation expense going on the income statement to affect net profit and loss.

      If you completely remove the Depreciation expense and Research and Development expense from Tesla’s 2015 Income Statement, Tesla would show only a $107.9 million profit on $3.741 Billion dollars of Gross Revenue, which is a paltry 2.88% profit margin. Bottom line is that Tesla has huge expenses that eat up almost all of their profits even when you don’t count the $1 Billion dollars in Depreciation and R&D expenses. That’s not a good sign.

      2015 Tesla Income Statement
      $3,741 million Gross Revenue

      ($888.7) million Net Loss
      +$278.7 million Depreciation expense
      +717.9 million Research and Development expense
      ——-
      $107.9 Profit before deducting Depreciation expense and R&D expense
      =======

      http://ir.tesla.com/secfiling.cfm?filingid=1564590-16-13195&cik=#TSLA-10K_20151231_HTM_CONSOLIDATED_STATEMENTS_OF_OPERATIONS

      1. Omar Sultan says:

        No, that is not really how it works. You first have to SPEND the money, then you get to write off the depreciation. Last FY, Tesla spent ~$3B on property, plant and equipment (almost doubling it over the prior year), including $1.5B on construction in progress (none of which will be deprecated until the equipment/facility is put into service). If you are halfway savvy, you will want to understand that gap between gross margin and operating margin–is Tesla doing something useful with that money or are they pi$$ing it away? If you are a good little troll, you will cherry pick line items from the financial statements to make whatever point you want, but what you did is the equivalent of cucumber – walrus = purple.

        1. Pushmi-Pullyu says:

          Thank you, Omar! Altho I’m not a “financial guy”, that appears to be the best refutation of Sven’s persistent anti-Tesla financial FUD that I’ve ever seen.

          This is well worth archiving, so again my thanks!

          1. Doggydogworld says:

            Sven’s post is correct, though I can’t figure out why he uses 2015 numbers.

            I don’t agree with him subtracting depreciation and amortization or 100% of R&D. On the flip side, I’d adjust SG&A downward. That’s all just opinion, though, reasonable minds can differ.

            Omar’s post mixes cash capital expenses with gross margin/operating margin. That doesn’t even make enough sense to warrant a comment.

            1. sven ¯\_(ツ)_/¯ says:

              Oops. I forgot to mention in my comment that I used 2015 financial year numbers, because the Solar City merger in 2016 meant that the 2016 depreciation and R&D expenses of Tesla and Solar City were combined and commingled on the 2016 financial statements with no way to break them out just for Tesla.

          2. sven ¯\_(ツ)_/¯ says:

            Why don’t you get a life Pu-Pu. It’s pretty obvious that Omar has never taken an accounting class and doesn’t know what he is talking about. He doesn’t even make sense. You’re just a little prick who never owned, and never will own an EV. You come here just to pick fights with people, because you are a pathetic loser that has nothing going on in his life. I almost feel sorry for you.

      2. Nix says:

        Where do you account for additional workers hired for the TM3? Where do you account for additional superchargers being built to support future TM3 customers (they are doubling the number of superchargers this year) Where do you account for the additional services centers being brought online? Where do you account for the construction of the TM3 Production assembly line? Where do you account for the additional customer service for handling TM3 CS requirements? Where do you account for Human Resources overhead for those workers that Tesla would not have if it were not for the TM3?

        etc, etc, etc.

        You are over-simplifying the costs of rapid company expansion in preparation for what will be a series of major product launches over the next few years.

        1. Doggydogworld says:

          Model 3 production line, new service centers, new Superchargers, etc. are all capex. They didn’t contribute to 2016’s loss.

          SG&A people working on Model 3 during 2016 can be subtracted from 2016 SG&A. It’s hard to guess how many of those there are. No salespeople, of course, but people doing facilities planning, IT, worker training, supplier negotitions, etc. all count. If we guess 4000 full-time-equivalents at $100k/yr burdened, that’s a 400m 2016 SG&A adjustment.

          2016 gross profit of 1.6b minus 1b adjusted SG&A and 400m adjusted R&D gets 200m operating profit. Interest expense is also 200m, so Tesla is roughly breakeven on an adjusted basis.

          (Note: I adjusted SG&A by subtracting the 400m Model 3 related expense I guessed at above. I adjusted R&D by using 2014’s number, because most R&D that year was for Model S improvements and Model X. I subtracted a little for advanced Model 3 R&D).

      3. Pushmi-Pullyu says:

        sven posted FUD:

        “The infrastructure and tooling investments are NOT expenses that go on the income statement and affect profit/loss. These expenditures are classified as depreciable assets…”

        Anti-Tesla FUDsters and short-sellers really like to get down into the weeds of which ledger column the accountants put debits and credits, don’t they?

        Reality check: Not so long ago, Tesla guaranteed the resale value of its cars, which put a big “thumb on the scale” of its profit and loss statements, making it look as though Tesla wasn’t getting as much net income as it actually was. Once Tesla stopped guaranteeing that, its profit-and-loss statements suddenly started looking better. Was there any real change to Tesla’s finances? Hell no!

        Of course, that reality doesn’t stop FUDsters like Sven from grasping at straws, still trying to make Tesla out to be some sort of scam company using dishonest accounting practices, even as Tesla makes highly desirable, world-class cars, and grows its market significantly every year.

        What is being argued over here is not whether or not Tesla is making money or whether or not it’s a successful company. What is being argued over here is merely which method is being used to count the money!

        Personally, since I’m not a stock investor, I couldn’t care less how Tesla chooses to count the money. I do care about the performance of Tesla Inc., the company, and not one whit about the performance of TSLA, the stock, excepting insofar as good stock performance helps Tesla borrow the money it needs for capital investments. (Note that’s “investments”… not “losses”!)

        1. sven ¯\_(ツ)_/¯ says:

          Pu-Pu said:
          “Anti-Tesla FUDsters and short-sellers really like to get down into the weeds of which ledger column the accountants put debits and credits, don’t they?”

          You are really dumb. An expenditure can be classified as either an expense that goes on the income statement and affects profit/loss, or as a depreciable asset that goes on the balance sheet and affects cash flow and has no affect on profit/loss. That’s fundamental accounting, and yes it is absolutely vital to get correct for accurate financial statements. You’re a jerk wad who’s only here to pump up the Tesla stock that’s in your portfolio. You come here to troll people who, unlike you, actually know what they’re talking about because a pathetic loser and huge shmuck.

  2. Jernej says:

    Exactly. Investments are massive, not RnD spending.

    1. R.S says:

      R&D spending is still massive, if you look at it relative to vehicles sold. They spent $246 million on R&D in Q4, while they just delivered 22,252 vehicles. That’s more than $11k per vehicle sold.

      Companies like Toyota spend about a tenth of that, per vehicle. The thing with Tesla is that they just have 2 existing vehicles. So developing a new one hurts Tesla more, than a company that already has a big model range.

      1. Alan says:

        Yes but when Tesla are churning out 500K vehicles the marginal cost of each comes down drastically and does so with each additional sale.

      2. Pushmi-Pullyu says:

        “R&D spending is still massive, if you look at it relative to vehicles sold.”

        Okay, but that’s just a natural result of Tesla still being a fairly small company. I don’t think it’s an indication of anything wrong with Tesla’s business practices. Things like this are just an inevitable part of the cost of doing business. It appears to me that overall Tesla is doing quite well, so long as it continues to grow significantly every year.

        If you disagree, then I’d like to know why.

  3. Mister G says:

    When all the gigafactories are paid in full and running at capacity, Tesla will become numero UNO lol…and all the naysayers and haters can kiss some EV ARSE lol

    1. leafowner says:

      Bingo Mr. G

      Just look what happened to the Sony Walkman…….If they had half a brain Sony would be dominating the cell phone market today but they instead tried to protect their precious Walkman…….

  4. Fronk says:

    Naysayers will have better luck talking about health care reform than Tesla failure……je…je

  5. Scott says:

    Since Chrysler is Italian and there is no other American car company to round out the group of three…

  6. ffbj says:

    The superiority of the ev is evident. It will eventually supplant the ice.

    1. ffbj says:

      Major determinant for why people buy cars, one over the other is safety. Some estimates claim you are 10x a magnitude safer in a Tesla.
      Couple that with the superiority of the ev motor, and you have a winning combination.
      http://finance.yahoo.com/quote/TSLA?p=TSLA

      1. Mister G says:

        And fuel source is residential…badabing!

  7. Nix says:

    Any attempt to directly compare traditional ICE car market caps completely fails to understand the difference between Tesla and those companies.

    Right off the bat, you have to add back in all the market cap for all the dealerships, because “dealerships” are included in TSLA market cap, but not the other companies. Here is just ONE of the major dealership franchises:

    AutoNation, Inc. (AN) Market Cap 4.25B

    You would have to go through all the individual dealership financials (most of which are private) and calculate back in their value, and add that to each of the major car maker’s numbers.

    Next you have to factor out the Tesla Energy and solar and supercharger network, because Tesla isn’t just a car company and the other companies simply don’t have those.

    You would have to continue looking at such factors as percent of car that comes from suppliers, and somehow account for the fact that Tesla keeps bringing more and more manufacturing in-house, in their own factories, unlike those other companies who have been trending in the exact opposite direction. You would have to factor in the relative Market Cap of their suppliers where Tesla may be doing in-house what the other companies have done by suppliers.

    The same goes for the finance side of the business. Most traditional car makers have a separate company with a separate Market Cap for that. Meanwhile, Tesla has done SOME of their own finance stuff (like the resale guarantee program, and limited leasing).

    ____________________

    Finally, even after you calculate all those offsets, there is yet one more factor that has to be addressed. Tesla is currently in massive growth, at levels nothing like any of those other car companies. And stock prices are forward-looking in nature. That means a number of future successes are already baked into the current stock prices. So when you try to compare past car sales numbers (which is a backward-looking statistic) and then try to apply that comparison to a forward-looking metric (like share prices), you MUST factor in the relative growth rates of the companies.

    ________________

    It simply isn’t possible to draw an informed conclusion off of just listing the market caps. It is an apples and oranges comparison

  8. Omar Sultan says:

    I guess you can call Tesla part of the “Big 3” simply by virtue of the fact they would be next behind GM and Ford, but I think market cap is a poor measure – revenue or volume is a more legit measure and Tesla is a distant 3rd there.

  9. Pushmi-Pullyu says:

    “By market value at least, the scrappy Silicon Valley upstart has become one of America’s Big Three.”

    That remark was no doubt written by a stock market investor, aimed at other stock market investors.

    For the rest of us, let’s wait until Tesla actually grows to the size where its production exceeds Chrysler before we label it one of a “New Big 3”.

    “Of course, we know that Tesla continues to lose money year after year…”

    Ohhhhh here we go again. Most people I know don’t call their investment in their 401(k) “losing money”. It’s very strange how Tesla investing money in future growth is described as if somehow Tesla lost that investment! What, did it drop between the couch cushions? Did it blow out the window? Did Molly Brown hide it in the potbelly stove and then J.J. (Johnny) Brown came along and burned it up?

    No, no, and no! It’s an investment, not a loss. Duh!

    “…loses [sic] will mount until the day comes when the company either withers away or turns a massive profit.”

    Firstly, you mean “losses” not “loses”. But aside from the errors of grammar and mischaracterization of an investment as a “loss”, how binary!

    Let’s enumerate other possibilities: Tesla decides to stop growing and content itself with a smaller market than the “Big 3”; Tesla starts turning a net annual profit, but only a narrow one; Tesla gets sold off to a larger auto legacy auto maker.

    No doubt others can add to this list.

    1. sven ¯\_(ツ)_/¯ says:

      Then why did Solar City “investments” lead them to be one step away from bankruptcy despite a greater than 20% gross profit margin, dumb a$$?

  10. Samwise says:

    If you measure by market cap there really is only a big one. Toyota is worth the next 3 combined!

    1. Nix says:

      Yes, despite GM, Toyota, and VW all having roughly the same global sales numbers for the last few years, swapping the top 3 positions….

      Yet another sign that market cap isn’t what it’s cracked up to be.

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