Tesla is now worth more than Ford, is this a sign of a new tech bubble, or does the valuation make sense?
Tesla’s problem is that to justify its $48 billion or so market valuation it has to hit an awful lot of targets. If it can do all those bold things it says it can do, and if there are no surprises – which frankly, in business there normally are – then its share price may be justified.
But then Tesla needs to raise money and money raising is helped if your share price is high.
Supposing investors went to bed on a Sunday night and dreamt about the dotcom crash of the early noughties, and went into panic mode and on Monday morning started selling Tesla. That may make it impossible for the company to raise the money it needs. Well, it is not likely that they will all have a shared dream – not until Elon Musk’s new idea, neural lace, gets traction – but optimism and pessimism can each go in and out of fashion, and who knows what can determine investors sentiments. And if Tesla shares fell to a level that a more traditional investor might describe as sensible, then the company’s fund raising ability may be thwarted, and then there would be a chance that the next chapter describing the Tesla story would have the number ‘eleven’ emblazoned on it.
Tesla sold more cars that it had predicted in Q4 – more by a small margin. And that was enough to see the shares surging.
And in the process Tesla, the company that is hoping to do to the electric car, what Henry Ford did with the Model T Ford, is now worth more money than that very same firm that Henry Ford founded 11.3 decades ago.
Is Tesla worth it?
It sold 70,000 cars last year, Ford sold 6. 6 million. Ford turned over $152 billion in 2016, Tesla managed $7 billion.
And while both companies made a loss recently, for Tesla that is normal., for Ford, the loss was a one-off.
Tesla is gunning on producing 50,000 cars in the first half of 2017, and expects to fire off some 500,000 cars in 2018. These are bold targets – after all, the company only sold 25,000 cars in the last quarter, no wonder many analysts are cynical.
But then Tesla is nothing, if not ambitious, and its growth to date has been nothing if not meteoric. Take the Tesla X, in the early days, production was behind schedule – by the company’s own admission, too much hubris went into the design. But then deliveries of the Tesla X rose from six cars in Q3 2015, to 8,774 in Q3 2016 and 11,550 in Q1 of this year.
Tesla is the car that many now want to own – it has become an aspiration.
But Tesla is not just about cars, it is not even called 'Tesla Motors' anymore, having dropped the words motors, it is also in the battery business and its Nevada Gigafactory, with more planned, could revolutionise the energy business – for both cars and homes/offices.
Henry Ford changed the world by applying the ideas of mass production to create a car ordinary folk could afford.
Tesla is trying to change the world too – and its cars and battery products would indeed disrupt not only the car business, but the energy business even the oil industry.
And if it can change the world, then maybe in five years’ time we will look back at the $48 billion market cap seen in April 2017, and say “now that was cheap.”