Tesla’s $48B market value has just surpassed Ford’s $45B. This based on Tesla’s 76,000 vehicles vs Ford’s 6,600,000 vehicles. No thats not a typo, those are the numbers. The landmark is largely symbolic, as adjusting for cash and debt Tesla’s enterprise value is actually 1.5x greater than Ford’s already.
In our view while Tesla is far and way the most exciting thing that has happened to the auto industry in a century, this valuation gap verges on the ludicrous. Perception minus reality equals value is an old adage in the technology industry, and nowhere is this more true than in Tesla’s ‘stock market darling’ valuation that remains at odds with how much it has proven.
To frame it concretely:
- Many venture stage companies achieve $1B+ valuations based on hype not performance. This is regrettable but now common enough to be understandable.
- It is quite another thing entirely to achieve a $60B valuation as a public company. For that to be validated, any company must deliver consistent performance and prove it can perform in a large market opportunity.
- Tesla has been a niche auto vendor and a promising power management/battery vendor. Niche automotive vendors are worth maybe a few $ billion (tiny specialists like Aston Martin trade for sub $1B), and until Tesla’s Model 3 achieves real scale, Tesla’s 100k annualised volumes are a lot closer to Aston Martin than Ford.
- That means the additional $50B+ of value is based on its future mainstream potential in the auto market and its power management/battery capability. While there is no question Tesla will scale current volumes, the auto market also shows signs of flattening out. And while Tesla has pioneered battery improvements, its battery business has certainly not gone mainstream.
A main difference seems to be perception: Tesla is a technology company making cars, and Ford is an industrial auto maker scrambling to be more tech-savvy. The market is betting hugely that starting from a tech base and moving to autos is hugely more valuable than the other way around.
All of which may be true, but as yet unproven at scale. And the ‘rule’ is that tech companies that haven’t yet demonstrated they can scale do not get valuations above $20B or so, which is already huge.
Overall, a disciplined investor would back Tesla all the way as a $10-25B automotive disruptor. But until its Model 3 moves Tesla into a different position in the auto industry, how can the market justify a multiple of that?
Perception minus reality equals value.