What To Make Of Tesla’s Unique Market Cap
MAKING SENSE OF TESLA’S MARKET VALUE
Many traditional stock-watchers have trouble understanding Tesla’s products, and most are completely baffled by the movements of its stock. In their world, stock values are supposed to be determined by quarterly earnings and, except for a couple of quarters here and there, TSLA has consistently posted losses. The short interest (investors who are betting that the stock will go down) has always been sky-high (one can only imagine the fortunes that have been lost over the past 7 years).
Wall Street analysts disagree wildly about Tesla. At the moment, a roughly equal number have “buy,” “sell,” and “hold” ratings on TSLA shares. In recent weeks, the stock has had another of its not-uncommon mini-boom-bust cycles, soaring to near its all-time highs on news that Model 3 is firmly on the road to production, then falling again after a mixed earnings report. Yesterday it jumped again.
One thing that truly does seem inexplicable: the fact that Tesla’s market capitalization has surpassed that of much larger companies such as Fiat Chrysler, Renault, Hyundai and Nissan, which are producing many times more vehicles (and golly, Nissan even has an EV!). In fact, Tesla, which sold just over 76,000 cars in 2016, has a market value not that much lower than that of giants GM (which sold 3 million vehicles in the US alone) and Ford (2.6 million).
The thing to remember is that stock prices never reflect the present, but rather a prediction of the future (by no means all investors are obsessed with the next quarter’s results). Electric and self-driving vehicles are the future, and Tesla is far ahead of any other automaker in both fields (how many of GM’s 3 million cars have anything like Autopilot?).
Many an internet company sees its stock price soar even as it burns through cash, because it is assembling a critical mass of “eyeballs” in some growing sector. Tesla is doing something similar in the auto game (and in solar energy, storage, ridesharing, and…). Elon’s true believers are betting that by the time the gentlemen (and lady) in the huge black SUVs figure out what’s going on, Tesla’s lead in technology, expertise and market share will be solid enough to withstand the worst they can unleash.
If the hopes of Tesla bulls seem irrational, so too do some of the hobbyhorses of the Tesla bears, in particular their insistence that Model 3 will be delayed, and that this will be a disaster for the company. As James Ayre of CleanTechnica* recently wrote, “in the imaginary world of finance…nothing seems to be correlated to what happens in the real world in any substantial way… Everything just seems to boil down to typical primate behavior: belief, projection, and dramatics.”
Mr. Ayre doesn’t believe that a Model 3 launch delay, if it happens, will amount to much more than an opportunity for traders to make money on a temporary dip in the stock price. “With the market share and customer goodwill that the company has built up to date (as a reminder, worldwide, not just in the US), [Tesla may be able to] expand rapidly over the coming years – and to conquer more and more of its competitors’ territory throughout the automotive, energy storage, solar, and on-demand taxi service sectors.”
Mr. Ayre and others of a bovine persuasion believe that Tesla’s stock will continue to rise, in irregular spurts, as traders make money on “the frantic groupthink fluctuations that see the herd stampede back and forth based on the appearance of truly minor events.” The long-term outlook is “pretty damn good.”
*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers. Our thanks go out to EVANNEX, Check out the site here.