Market Overview

Tesla's Valuation Is Greater Than Nearly The Entire Established Auto Industry

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Tesla's Valuation Is Greater Than Nearly The Entire Established Auto Industry

Tesla Inc (NASDAQ: TSLA) shares rallied another 4% to new all-time highs on Thursday morning following this week's news that the stock will be added to the S&P 500.

Tesla shares are now up 1,045% in the last 18 months. The stock's market cap stands around $480 billion at publication time.

From a valuation perspective, something curious appears to be going on with Tesla. As BNN Bloomberg’s anchor Jon Erlichman tweeted on Wednesday, Tesla’s market cap is now roughly in-line with the combined market caps of nearly the entire legacy auto industry.

Related Link: Tesla Analyst Reacts To S&P 500 Inclusion: A Victory For Bulls

The Rest Of The Industry: In fact, the combined market value of the following 12 companies was only $422 billion, as of Wednesday:

  • General Motors Company (NYSE: GM)
  • Ford Motor Company (NYSE: F)
  • Fiat Chrysler Automobiles NV (NYSE: FCAU)
  • BMW (OTC: BMWYY)
  • Honda Motor Co Ltd (NYSE: HMC)
  • Hyundai Motor Company (OTC: HYMTF)
  • Nissan Motor Co Ltd (OTC: NSANY)
  • Mazda Motor Corp (OTC: MZDAY)
  • Aston Martin (OTC: ARGGY)
  • Subaru (OTC: FUJHY)
  • Volkswagen (OTC: VWAGY)
  • Daimler (OTC: DDAIF)

The exception to this list is Toyota Motors Corp (NYSE: TM), which has a market cap of about $227 billion.

One of two things is occurring when it comes to Tesla’s valuation. The first possibility is that the market is pricing in the idea that Tesla will eventually gain nearly 100% market share of the global auto market, which seems extremely unlikely.

The other possibility is that investors believe Tesla’s EV model, battery power, technology and related infrastructure are creating an entirely new auto industry rather than fully disrupting the existing one.

Not only are investors buying into Tesla’s growth, they're paying an increasingly hefty premium for that growth. In the last three years, Tesla’s trailing 12-month revenue has grown by 139.6%, but its market cap has increased by 665% in that time.

Tesla’s Rise: Here’s a look at how Tesla’s market cap has compared to the “big three” U.S. automakers, GM, Ford and Fiat Chrysler, in the last three years.

Jan 1, 2016:

  • Ford: $56.8 billion
  • GM: $51 billion
  • Fiat Chrysler: $15.6 billion
  • Tesla: $31.5 billion
  • Combined Big Three: $123.4 billion

Jan 1, 2018:

  • Ford: $49.6 billion
  • GM: $58.2 billion
  • Fiat Chrysler: $34.7 billion
  • Tesla: $52.3 billion
  • Combined Big Three: $142.5 billion

Jan 1, 2020:

  • Ford: $36.8 billion
  • GM: $51.2 billion
  • Fiat Chrysler: $29 billion
  • Tesla: $75.7 billion
  • Combined Big Three: $117 billion

Today:

  • Ford: $35.6 billion
  • GM: $62 billion billion
  • Fiat Chrysler: $30.3 billion
  • Tesla: $458.9 billion
  • Combined Big Three: $127.9 billion

A look at the four companies’ trailing 12-month revenues highlights just how much future growth the market is already pricing into Tesla’s stock price:

  • Ford: $130.9 billion
  • GM: $115.7 billion billion
  • Fiat Chrysler: $90.6 billion
  • Tesla: $28.1 billion
  • Combined Big Three: $337.2 billion

Benzinga’s Take: It doesn’t make sense that nearly all the cars sold in the world in the future will be Tesla vehicles, nor does it make sense that the size of the global auto market will double.

Therefore, Tesla’s massive market cap compared to the largest legacy auto companies in the world seems to suggest that investors believe other businesses outside of pure auto unit sales will play an extremely large role in Tesla’s future business model.

 

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