Electric car maker Tesla Inc. this week raced ahead of General Motors to become America’s most valuable automobile company. Just a week after topping Ford Motor Co., Tesla climbed another 3.3 percent on Monday, bringing its market capitalization to $50.9 billion. At the end of the day, the electric-car maker was valued at about $64 million more than GM.
Tesla is now the sixth-largest carmaker, valued at just $1 billion less than #5 Honda Motor Co. But the company is still financial miles behind #1 Toyota’s $172 billion market cap.
By usurping GM and Ford, Tesla has spurred debate over the relative value of the electric-car company compared with other industry leading automakers.
At the end of the day, car manufacturers are a business, not just a stock market commodity. While GM expects to earn over $9 billion this year and Ford is predicted to generate profit of about $6.3 billion, Tesla is expected to lose more than $950 million.
That hasn’t dampened some people’s enthusiasm for Tesla shares. Tesla has long been treated like a technology stock, with investors betting on its ability to dominate the market for both electric cars and energy storage.
Many Tesla-friendly investors and commentators believe nothing will slow the company’s upward momentum. Their argument: Tesla is bigger than just cars. These folks believe the company’s real value lies in the potentially huge returns Tesla could see from its innovations in the alternative energy sector. Meanwhile, say Tesla advocates, GM and Ford are headed for a slowdown in car sales that will diminish profits.
And here’s where it gets personal – Tesla fans believe in the brand. It engenders a range of emotions, from freedom to optimism to defiance, that other older companies aren’t replicating. GM may have beat Tesla to market with the plug-in Chevrolet Bolt, but the more than century-old company failed to match the enthusiasm drummed up by its much smaller and rarely profitable U.S. peer. The Bolt was met with a yawn, while people are drumming their fingers for the release of Tesla’s Model 3 sedan later this year.
So, in simple terms, is fair to count Tesla among the auto industry’s giants? The short answer is no. Even if Tesla turns a profit, they will eventually have to make enough to justify this valuation. As an illustration, last year Tesla delivered fewer than 80,000 vehicles globally. GM’s delivered than 10 million. We’re not talking apples to apples here.
But our perceptions shape reality. The rollout of the Model 3 sedan later this year will be a fulcrum for Tesla to transform from niche carmaker into a mass-market manufacturer. Or not. Even still, Tesla’s products have a captivating impact on both consumers and shareholders. This is strong stake. So even if the Model 3 production launch goes badly, customers (and more importantly shareholders) will withhold judgment for love of the brand.
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