Tesla, which is still not in the top ten in car production, is worth more than $1 trillion and puts even the most profitable technology company in the shadows. Analysts struggle to explain the high valuation.
Investors have long stopped comparing Tesla with other publicly traded automakers. Even valuations of the tech giants, which are betting heavily on expected future earnings, pale in comparison to the price investors are willing to pay for one of the nearly 1 billion shares of Tesla.
- Tesla appears to have crossed the market cap of $1,000 billion on Monday.
- Analysts struggle to find an explanation for that assessment.
- Carmakers have long grown Tesla – in valuation terms. But even the technical classification does not seem appropriate.
- Stock price records increase the chance that founder Elon Musk will become the first human on Earth with an estimated fortune of more than $1,000 billion.
There was good news — car rental company Hertz orders 100,000 units of the Model 3 — that was enough to push Tesla’s valuation over the $1 trillion threshold.
Tesla isn’t the first company to have that legendary market capitalization, but in the select club of trillions, the US electronic car maker stands out for its relatively low turnover and profits. On Monday, investors were willing to pay up to 108 times the expected earnings for next year for a share of Tesla. At Apple, a cash machine has almost no equal, the multiplier is 25.
Monday’s rally surprised analysts. The Hertz deal is good for the $4.2 billion in additional revenue in Tesla, but investors suddenly value the company $80 billion higher. “Crazy,” was the short comment from Neil Campling, an analyst at Mirabud.
Monday’s rally surprised analysts. The Hertz deal is good for the $4.2 billion in additional revenue in Tesla, but investors suddenly value the company $80 billion higher.
How do you measure the company’s valuation? Results are usually compared (whether in the future or not) with those of their peers. For Tesla, it seems obvious to compare the stock’s market capitalization with other car manufacturers such as Volkswagen, Toyota, BMW or General Motors. But this comparison is no longer valid.
Since Tesla dethroned Toyota as the world’s most valuable automaker a year ago, it has only distanced itself more than the rest. Worth 1,000 billion, Elon Musk is currently worth more than nine car groups combined: from Toyota, through Volkswagen, GM, Ford, BMW to parent company Daimler.
So the analysts had to look for other “peers” for Tesla. They ended up at the top of the tech world, like Apple, Alphabet, Amazon, Facebook and Microsoft. But there, too, the evaluation models now fail: Tesla is estimated to be much higher.
Adam Jonas, a Tesla analyst at Goldman Sachs and one of Musk’s most-followed empire watchers, made another attempt to explain Tesla’s value in late August by evaluating the promising parts of the company, even though it’s not a separate business unit.
The most valuable part of Tesla remains the automaker, according to Jonas: Just over 40 percent of the valuation comes from giga factories and the four models (S, 3, X and Y). Good for the current valuation of more than 400 billion dollars.
Lots of money, but perhaps that’s explained by Musk’s promise that Tesla production will grow 50 percent a year right now. As long as the new plants in Germany and China are not completed, demand for Teslas will also exceed supply. If you want a new Model S now, you can be happy if it has it delivered at the end of next year. Most importantly, Tesla makes a profit from the production and sales of its cars.
In second place is “Network Services”. Jonas points to the self-driving plug-in that Tesla owners can order with Tesla as an option for €7,500. The offering of this service is expected to expand further in the coming years and Tesla will also become a major seller of subscriptions, something that investors are keen on.
But even smaller parts, such as selling household batteries, were already valued by Goldman Sachs at 10 percent of the market value, which is now $100 billion. Even Tesla’s insurance arm is said to be worth $30 billion, while it only acts as a distributor of auto policies and currently operates only in California. By comparison: Belgian international insurance company Ageas was valued at €8 billion on the Brussels Stock Exchange on Tuesday.
Whatever Tesla’s rating is, it makes Musk the richest person on earth, at least on paper. His 17.3 percent stake in Tesla alone made $184 billion on Wall Street on Tuesday. Besides his 50 percent stake in space company SpaceX, Bloomberg News estimates Musk’s net worth at more than $250 billion. According to analysts, Musk is in pole position to become the first human on the planet with a fortune of $1,000 billion.
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