Tesla becomes most valuable car company in the world

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Jags4186
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Tesla becomes most valuable car company in the world

Post by Jags4186 » Wed Jul 01, 2020 9:53 am

So this morning Tesla has officially overtaken Toyota as the worlds most valuable car manufacturer. I have sat on the sidelines while several friends of mine have made buckets on money on this company. I understand that stocks are valued based on expected future earnings. My question is at what point does a company need to actually achieve these earnings? Toyota profitably sells over 10,000,000 vehicles a year. Tesla sells 500,000. It seems that the expectation is that Tesla will be making more than Toyota.

When do earnings need to catch up to valuations?

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Re: Tesla becomes most valuable car company in the world

Post by atdharris » Wed Jul 01, 2020 9:55 am

I have never understood Telsa's valuation even based on future earnings as both a car company and a battery company. I put $100 into TSLA on Robinhood for fun and have seen it go up 26% in about 3 weeks. It's fun to watch, but not something I ever felt comfortable putting a large amount of money into.

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Re: Tesla becomes most valuable car company in the world

Post by sschullo » Wed Jul 01, 2020 9:59 am

I never understood the valuations of most growth companies. I vividly recall back in the tech wreck days.
With Tesla, I understand one of their products. I have owned one for over 6 years and saved a ton on petroleum and maintenance.
BTW I do own shares through the Total Stock Market Index.
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Re: Tesla becomes most valuable car company in the world

Post by firebirdparts » Wed Jul 01, 2020 10:28 am

There are a lot of people who are really investing in Tesla just because they like it. I don't know how much money these people actually have, but whatever they have, they tripled it since Musk's "420" tweet.

As you all know, the car business is very, very cruel, and I don't think anybody really expects them to make that kind of money. I don't think anybody really expects Tesla to pay a $100 a share dividend or anything like that.
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Re: Tesla becomes most valuable car company in the world

Post by Jags4186 » Wed Jul 01, 2020 10:41 am

firebirdparts wrote:
Wed Jul 01, 2020 10:28 am
There are a lot of people who are really investing in Tesla just because they like it. I don't know how much money these people actually have, but whatever they have, they tripled it since Musk's "420" tweet.

As you all know, the car business is very, very cruel, and I don't think anybody really expects them to make that kind of money. I don't think anybody really expects Tesla to pay a $100 a share dividend or anything like that.
Yes, a legitimate concern I have with the stock is with the "Robinhood" investors who buy the stock because the brand is cool. What if something cooler comes along? Of course, I have no idea if Robinhood investors can actually move the market as those folks on CNBC claim they do.

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Re: Tesla becomes most valuable car company in the world

Post by Mordoch » Wed Jul 01, 2020 11:06 am

While I am not really inclined to get into a debate if TSLA is a good investment to specifically buy or hold as a specific holding at its current stock price, it is worth noting that Tesla is also a battery and solar company so its valuation is not purely based on its car business. This also means the car portion of its business does not necessarily have to grow to the size of Toyota's in order to justify its current valuation. (The idea everyone merely holds its stock because the company is cool as opposed to a portion of them being at least supposedly more sophisticated investors who believe it will eventually grow its business to justify its valuation is clearly wrong.)

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Re: Tesla becomes most valuable car company in the world

Post by DB2 » Wed Jul 01, 2020 11:07 am

I don't buy individual stocks/companies, but I think Tesla is geared better for the future (electric and autonomous) compared to the larger car companies who will be much slower to adapt and to make changes. Tesla will be smaller and leaner - I think an advantage.

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Re: Tesla becomes most valuable car company in the world

Post by MarkBarb » Wed Jul 01, 2020 11:24 am

Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
My question is at what point does a company need to actually achieve these earnings?

When do earnings need to catch up to valuations?
Never and never. As long as the market consensus is that the earnings are coming someday, that's good enough. Telsa's stock could collapse tomorrow. It could keep going up for decades without the company turning a consistent profit. Sometimes these sky high stock prices are based on real future earnings (Apple, Microsoft, Google, Facebook, Amazon). Sometimes the future earnings never appear.

Telsa is a weird beast. It's cars are ahead of the pack by a wide margin in a lot of important technology. On the other hand, it has a horrible record for build quality and addressing problems. The vast majority of people I know with a Tesla love their car. The CEO is a genius and a charlatan with a history of bizarre and illegal acts.

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Re: Tesla becomes most valuable car company in the world

Post by 4nursebee » Wed Jul 01, 2020 1:22 pm

Following
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Re: Tesla becomes most valuable car company in the world

Post by cj2018 » Wed Jul 01, 2020 1:40 pm

MarkBarb wrote:
Wed Jul 01, 2020 11:24 am
Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
My question is at what point does a company need to actually achieve these earnings?

When do earnings need to catch up to valuations?
Never and never. As long as the market consensus is that the earnings are coming someday, that's good enough. Telsa's stock could collapse tomorrow. It could keep going up for decades without the company turning a consistent profit. Sometimes these sky high stock prices are based on real future earnings (Apple, Microsoft, Google, Facebook, Amazon). Sometimes the future earnings never appear.

Telsa is a weird beast. It's cars are ahead of the pack by a wide margin in a lot of important technology. On the other hand, it has a horrible record for build quality and addressing problems. The vast majority of people I know with a Tesla love their car. The CEO is a genius and a charlatan with a history of bizarre and illegal acts.
I'm so glad a Tesla thread is back on BH! I remember a bit over half-year ago in late 2019 when I had a fierce debate with a fellow called JoMoney or something and he was heavily shorting Tesla when the stock was traded between $200-$300. I haven't seen the fellow since and hope he's doing well with that trade...

Anyway, Tesla is not valued as a traditional car manufeture and comparing it to Toyota or Big3 in Detroit makes 0 zero. It's like comparing Amazon to Walmart or Costco or other traditional retailers. It's not apples to oranges.

You need to understand Tesla is an energy and tech company. Imagine a world where all Tesla cars are connected to Starlink (https://www.starlink.com/) and are 100% self-driving capable and could serve in the RoboTaxi fleet when the owner is not using it. Imagine the Tesla car gains flying-capaiblity (SpaceX booster anyone?) and solves traffic problem. Imagine Tesla's battery and solar technologies continue to improve and ultimately revolutionize the energy industry altogether.

Again, Tesla's valuation is based 100% on growth, and so far Musk has done a great job demonstrating and selling his interplanetary vision for the Human Species along with his work at SpaceX so yeah...its stock price is taken off just like his rocket boosters....I'm certainly sold on his vision and would like to see that vision become a reality in some future date.

Disclosure: I do not own Tesla stock but owns VTSAX which owns Tesla.

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Re: Tesla becomes most valuable car company in the world

Post by TomatoTomahto » Wed Jul 01, 2020 1:53 pm

When I bought my Tesla X, TSLA was at $193. I have been nothing but pleased with my car. I am human, and think of what would have happened if I’d put the purchase price into TSLA ... :moneybag
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Tesla becomes most valuable car company in the world

Post by alex_686 » Wed Jul 01, 2020 2:01 pm

Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
So this morning Tesla has officially overtaken Toyota as the worlds most valuable car manufacturer. I have sat on the sidelines while several friends of mine have made buckets on money on this company. I understand that stocks are valued based on expected future earnings. My question is at what point does a company need to actually achieve these earnings? Toyota profitably sells over 10,000,000 vehicles a year. Tesla sells 500,000. It seems that the expectation is that Tesla will be making more than Toyota.

When do earnings need to catch up to valuations?
First, I doubt that Tesla is the most valuable company in the world. I would like some numbers please. Note, I do not mean market cap. I mean "Enterprise Value". The short story here, without looking up the formula is: EV = Market Cap + Bonds. That is, the value of a company as a whole, before the CFO starts fiddling with the capital strucutre.

Which takes me to my second point. Maybe Tesla is overvalued. Maybe it is a overestimate on the number it will sell. It is also tied to how Tesla is going to make those cars, with lots of fancy robots.

Or maybe this reflects the weakness in Toyota. Toyota, and the automotive industry in general, has massive capital sunk into building gas powered cars using a fair amount of man power.

Generation Z is buying fewer cars. Ride share, etc. So lets cut 10% from new cars sold. If self driving cars are available in the next 10 years, we can cut that by 30%. Electric cars uses 30% to 50% less manufacturing plant than gasoline cars. So maybe Toyota is going to have to figure out how to downsize by 50%. This would be brutal.

Tesla would not have any of that sunk costs to deal with.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

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Re: Tesla becomes most valuable car company in the world

Post by goodenyou » Wed Jul 01, 2020 2:29 pm

I remember when “Amazon Dot Bomb” was a headline on the front cover of Barron’ s about 20 years ago. They had to sell something like 500,000 books per minute (exaggeration for effect and illustration) to justify their stock price. I remember saying how foolish people were to buy Amazon at that price.

Take note: I didn’t say valuation. Price and valuation are not the same. Valuation is much more complex and has a lot to do with the non-financial aspects of the company.

I still wouldn’t buy Tesla stock at these prices. I do like their new 2020-21 Roadster though.
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Re: Tesla becomes most valuable car company in the world

Post by Jack FFR1846 » Wed Jul 01, 2020 2:43 pm

Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
So this morning Tesla has officially overtaken Toyota as the worlds most valuable car manufacturer. I have sat on the sidelines while several friends of mine have made buckets on money on this company.
If your friends have made buckets of money, that would indicate that they've sold. If they instead have held the stock, they've made nothing yet and won't until they sell.
Bogle: Smart Beta is stupid

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Re: Tesla becomes most valuable car company in the world

Post by Jags4186 » Wed Jul 01, 2020 2:44 pm

alex_686 wrote:
Wed Jul 01, 2020 2:01 pm
Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
So this morning Tesla has officially overtaken Toyota as the worlds most valuable car manufacturer. I have sat on the sidelines while several friends of mine have made buckets on money on this company. I understand that stocks are valued based on expected future earnings. My question is at what point does a company need to actually achieve these earnings? Toyota profitably sells over 10,000,000 vehicles a year. Tesla sells 500,000. It seems that the expectation is that Tesla will be making more than Toyota.

When do earnings need to catch up to valuations?
First, I doubt that Tesla is the most valuable company in the world. I would like some numbers please. Note, I do not mean market cap. I mean "Enterprise Value". The short story here, without looking up the formula is: EV = Market Cap + Bonds. That is, the value of a company as a whole, before the CFO starts fiddling with the capital strucutre.

Which takes me to my second point. Maybe Tesla is overvalued. Maybe it is a overestimate on the number it will sell. It is also tied to how Tesla is going to make those cars, with lots of fancy robots.

Or maybe this reflects the weakness in Toyota. Toyota, and the automotive industry in general, has massive capital sunk into building gas powered cars using a fair amount of man power.

Generation Z is buying fewer cars. Ride share, etc. So lets cut 10% from new cars sold. If self driving cars are available in the next 10 years, we can cut that by 30%. Electric cars uses 30% to 50% less manufacturing plant than gasoline cars. So maybe Toyota is going to have to figure out how to downsize by 50%. This would be brutal.

Tesla would not have any of that sunk costs to deal with.
I did not say Tesla was the most valuable company in the world. That is Microsoft or Apple depending on the day. I said it was the most valuable car manufacturer in the world. And yes, that is by market cap. By Enterprise Value it trails Toyota by $100bn (but is still worth over $200bn Enterprise Value as of 6/30/20).

https://ycharts.com/companies/TSLA/enterprise_value
https://ycharts.com/companies/TM/enterprise_value

https://markets.businessinsider.com/new ... 1029359765#

It’s Enterprise Value is more than twice that of Honda’s.

I’m not disagreeing that legacy auto manufacturers have significant technological and inertial hurdles to overcome to catch up with Tesla. I understand that Tesla is valued highly because there is the belief they are years ahead of the competition in technology and represent a potential paradigm shift for the industry. My question is what is the time frame for this to play out?

If you compare TSLA IPO until now to the first 10 years of Microsoft since it IPO’d they have pretty similar returns of 50% annualized. Except 10 years after Microsofts IPO, practically every person on earth used their product on some level or another. TSLA, while having real products, is now here near that penetration.

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Re: Tesla becomes most valuable car company in the world

Post by Jags4186 » Wed Jul 01, 2020 2:45 pm

Jack FFR1846 wrote:
Wed Jul 01, 2020 2:43 pm
Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
So this morning Tesla has officially overtaken Toyota as the worlds most valuable car manufacturer. I have sat on the sidelines while several friends of mine have made buckets on money on this company.
If your friends have made buckets of money, that would indicate that they've sold. If they instead have held the stock, they've made nothing yet and won't until they sell.
It’s a nice thing to say, it’s simply not true though. You don’t need realize a gain to have a gain.

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Re: Tesla becomes most valuable car company in the world

Post by MittensMoney » Wed Jul 01, 2020 2:50 pm

We're in a bit of a hype-induced run up with this market. Shopify has gained over 3,000% in 5 years. Many, many companies have seen their valuation outstrip any reasonable metric of future performance. When do earnings need to catch up to valuations? When the news cycle turns.

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Re: Tesla becomes most valuable car company in the world

Post by deltaneutral83 » Wed Jul 01, 2020 3:04 pm

I would say that most individual companies are speculative in nature. A company with zero earnings would certainly have to be considered speculative and not an investment. Happy for all those who have thrown some money at it, they have done very well obviously.

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Re: Tesla becomes most valuable car company in the world

Post by almostretired1965 » Wed Jul 01, 2020 3:57 pm

So the way I would frame this question is whether there is a plausible scenario where Tesla will at some point, say five to ten years down the road, become the most profitable car company in the world on an ongoing basis. (I'm deliberately discounting the ancillary businesses they are in since it is not clear to me if they actually have much of a competitive advantage there.) So I think the answer to that is yes, whether one believes it is likely or not. For that to be true, however, two things need to occur:

1. Demand for electric (versus gasoline powered) cars accelerate and come to dominate the market.
2. Tesla maintains its current large lead in electric vehicle technology, possibly augmented by their development of autonomous driving.

If both of these happen, then I can clearly see a situation where, in hindsight, it turns out their current valuation is fully justified. As a corollary, one interpretation of its current valuation is that the market believes that the scenario I've sketched out is a probable outcome.

A

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Re: Tesla becomes most valuable car company in the world

Post by firebirdparts » Wed Jul 01, 2020 4:06 pm

I'm a car guy, and I would say yes, it could become the most profitable car company in the world in 10 years. HOWEVER: That is not saying much.
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Re: Tesla becomes most valuable car company in the world

Post by theTRA » Wed Jul 01, 2020 4:25 pm

TomatoTomahto wrote:
Wed Jul 01, 2020 1:53 pm
When I bought my Tesla X, TSLA was at $193. I have been nothing but pleased with my car. I am human, and think of what would have happened if I’d put the purchase price into TSLA ... :moneybag
oof

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Re: Tesla becomes most valuable car company in the world

Post by ohboy! » Wed Jul 01, 2020 4:37 pm

MarkBarb wrote:
Wed Jul 01, 2020 11:24 am
Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
My question is at what point does a company need to actually achieve these earnings?

When do earnings need to catch up to valuations?
Never and never. As long as the market consensus is that the earnings are coming someday, that's good enough. Telsa's stock could collapse tomorrow. It could keep going up for decades without the company turning a consistent profit. Sometimes these sky high stock prices are based on real future earnings (Apple, Microsoft, Google, Facebook, Amazon). Sometimes the future earnings never appear.

Telsa is a weird beast. It's cars are ahead of the pack by a wide margin in a lot of important technology. On the other hand, it has a horrible record for build quality and addressing problems. The vast majority of people I know with a Tesla love their car. The CEO is a genius and a charlatan with a history of bizarre and illegal acts.
The FANG prices are based on real future earnings? What does that mean? In the future they will profit enough to we worth $1T? On the average aren’t they valued at some insane multiple of their annual profits? Does anyone think they will pay some big dividend some day? Or are they just winning in the machine of market capitalization and index fund allocations?

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Re: Tesla becomes most valuable car company in the world

Post by Elysium » Wed Jul 01, 2020 4:50 pm

Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
So this morning Tesla has officially overtaken Toyota as the worlds most valuable car manufacturer. I have sat on the sidelines while several friends of mine have made buckets on money on this company. I understand that stocks are valued based on expected future earnings. My question is at what point does a company need to actually achieve these earnings? Toyota profitably sells over 10,000,000 vehicles a year. Tesla sells 500,000. It seems that the expectation is that Tesla will be making more than Toyota.

When do earnings need to catch up to valuations?
I have theory on Tesla valuation. It is not based on conventional car sales or the battery technology. They are never going to exceed Toyota in sales and the battery tech isn't ground breaking. The bet is instead on a paradigm shift in how cars operate. Just like Amazon changed the way we shop, investors are betting Tesla would uncover a fundamental shift in how cars operate. Think of autonomous driving technology, driver less cars, that can make transportation leap frog into a future we haven't seen yet, and improve productivity beyond existing methods. This is the stuff of science fiction. If they pull this off then the stock is worth current price and more, if not then it has to come down because conventional business will not justify the price.

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Re: Tesla becomes most valuable car company in the world

Post by 1789 » Wed Jul 01, 2020 5:13 pm

Isn't the CEO himself said stock is overvalued when it was around 700$ or less?

https://www.barrons.com/news/tesla-shar ... 1588364705
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Re: Tesla becomes most valuable car company in the world

Post by drk » Wed Jul 01, 2020 5:18 pm

Elysium wrote:
Wed Jul 01, 2020 4:50 pm
I have theory on Tesla valuation. It is not based on conventional car sales or the battery technology. They are never going to exceed Toyota in sales and the battery tech isn't ground breaking. The bet is instead on a paradigm shift in how cars operate. Just like Amazon changed the way we shop, investors are betting Tesla would uncover a fundamental shift in how cars operate. Think of autonomous driving technology, driver less cars, that can make transportation leap frog into a future we haven't seen yet, and improve productivity beyond existing methods. This is the stuff of science fiction. If they pull this off then the stock is worth current price and more, if not then it has to come down because conventional business will not justify the price.
This bull case is exactly what drove the railroad stock bubble. Once these advances actually arrive, they'll become standardized and commoditized.

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Re: Tesla becomes most valuable car company in the world

Post by willthrill81 » Wed Jul 01, 2020 5:21 pm

Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
My question is at what point does a company need to actually achieve these earnings?
That's a fabulous question. I know because I've been asking it myself for quite some time. :wink:

I have no idea. Despite its revenues and hoopla, Amazon's profit is a pittance. Their front is a gift shop, while in the back they're running a very successful web hosting platform. But their profits are tiny (relatively speaking).

Maybe the market is right about Tesla, Amazon, and other LCG companies. I just don't see it. That doesn't keep me from owning them, mind you.
Jags4186 wrote:
Wed Jul 01, 2020 10:41 am
firebirdparts wrote:
Wed Jul 01, 2020 10:28 am
There are a lot of people who are really investing in Tesla just because they like it. I don't know how much money these people actually have, but whatever they have, they tripled it since Musk's "420" tweet.

As you all know, the car business is very, very cruel, and I don't think anybody really expects them to make that kind of money. I don't think anybody really expects Tesla to pay a $100 a share dividend or anything like that.
Yes, a legitimate concern I have with the stock is with the "Robinhood" investors who buy the stock because the brand is cool. What if something cooler comes along? Of course, I have no idea if Robinhood investors can actually move the market as those folks on CNBC claim they do.
You doubt the efficiency of the market? :shock:

Hint: I've never believed the market to be as efficient as many do.
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Re: Tesla becomes most valuable car company in the world

Post by firebirdparts » Wed Jul 01, 2020 5:25 pm

Elysium wrote:
Wed Jul 01, 2020 4:50 pm

I have theory on Tesla valuation. It is not based on conventional car sales or the battery technology. They are never going to exceed Toyota in sales and the battery tech isn't ground breaking. The bet is instead on a paradigm shift in how cars operate.
You may be right, but nobody thinks this shift will result in profits for anybody. That's the big fear. It would make trucking cheaper, though, by eliminating a lot of jobs. That might be worth something.
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Re: Tesla becomes most valuable car company in the world

Post by Normchad » Wed Jul 01, 2020 5:30 pm

I do own Tesla stock, but think these valuations are silliness.

The automotive industry is very capital intensive and has very slim profit margins overall. Tesla has figured out ways to make more money after the sale of the car. For example, I can click on my phone, pay them $2,000 and make my car quite a bit faster. That’s pure profit for them. I’m sure that ability, to make more profit per car after the sale, is worth something. Also, I’ll be paying them about $100/year for “premium connectivity”.

All good ideas get copied eventually. More and more though, it looks like legacy car makers are nowhere close to Tesla in most areas that Tesla cares about.

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Re: Tesla becomes most valuable car company in the world

Post by mrspock » Wed Jul 01, 2020 5:46 pm

Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
So this morning Tesla has officially overtaken Toyota as the worlds most valuable car manufacturer. I have sat on the sidelines while several friends of mine have made buckets on money on this company. I understand that stocks are valued based on expected future earnings. My question is at what point does a company need to actually achieve these earnings? Toyota profitably sells over 10,000,000 vehicles a year. Tesla sells 500,000. It seems that the expectation is that Tesla will be making more than Toyota.

When do earnings need to catch up to valuations?
I would go check out the advertising business of your favorite tech stocks like Google. People laughed at them years ago too with their "lofty" valuations, and how little revenue they had vs. the old guard (TV networks, new papers)... suffice it to say, they aren't laughing anymore. Also, PE ratios really? Remember Amazon? Did anyone learn anything from that? When companies are able to re-invest earnings with high rates of IRR, PE isn't the right way to value a company in it's "growth" phase.

Tesla is (borderline) profitable, and they've gone from 0 to 0.5m/yr cars in 10 years. Their profit margins are also much higher, so they don't even need to sell as many cars. Finally, their end game isn't to sell cars to mom and pop like legacy auto makers, this is a just a stepping stone. The end game here is a fleet of self driving cars, which they will own, and car ownership will evolve to a subscription model (watch the last season of West World -- it's THAT). If you are pricing them assuming a legacy auto manufacturing business model, this isn't the correct way to look at them (it'd be like comparing Amazon to JC Penny or K-Mart in 2005).

If Elon pulls this off, $200B could look cheap in 10 years.
Last edited by mrspock on Wed Jul 01, 2020 5:51 pm, edited 5 times in total.

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Re: Tesla becomes most valuable car company in the world

Post by frugalecon » Wed Jul 01, 2020 5:47 pm

I don’t know how much it’s worth, but I think Tesla’s big advantage is in data. They have hundreds of thousand of vehicles out there generating data about the physical world and how driving works. That could be valuable, and hard for any company in second or third place to overcome. Tech seems to be characterized by “winner-take-all” contests.

ETA: just to make my point clearer, there are positive network effects at work if each Tesla vehicle out there makes each other Tesla’s driving capability better. I expect that is the case.

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Re: Tesla becomes most valuable car company in the world

Post by Normchad » Wed Jul 01, 2020 6:00 pm

They have a lot going for them. I don’t know if they will survive, or be hugely profitable. Stuff they have though that others don’t include:
1) all that driving data.
2) Tesla cars, even without FSD, run the FSD algorithms in the background. And when people do something different than the algorithm would have, that goes back to Tesla to train the AI.
3) more efficient motors than anybody. Tesla’s go further on a smaller battery because they are more efficient.
4) Better batteries
5) A lot more knowledge about batteries in the real world and how to improve them
6) software. Software in the Tesla pretty much just works. Every other cars software sucks. In my other car I have to drive half a block before the Bluetooth connects.
7) People want to buy their cars. People with more money want to buy them. Honestly, nobody wants a Bolt or a Leaf.
8) they are starting to execute better. They built the China factory and made the first car in under a year. Just amazing. And they’re making one in Germany as well. So they start selling a million cars a year very soon. Still not Toyota size, but a huge leap ahead for them.

People invariably compare Tesla to Apple. Apple makes more money in the cellphone space than anybody, but doesn’t dominate the sales numbers. Maybe people are betting that will happen here too.

Honestly though, I could also write a huge long list of doubts and problems they face.

I do believe the market is efficient. But in some places and spaces, it goes bonkers. This might be one of those cases.

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Re: Tesla becomes most valuable car company in the world

Post by InvestorP » Wed Jul 01, 2020 6:30 pm

Most investors are not looking at them as a car company but more so a tech company. I think that explains the stock price. I do have some fun money in Tesla stock and it's been fun to watch it go up. But if it does go down eventually, that is money that I don't mind losing because my real money is in index funds.

I have to admit, their cars are pretty cool and I might own one one day.

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Forester
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Re: Tesla becomes most valuable car company in the world

Post by Forester » Thu Jul 02, 2020 3:04 am

"Tesla are a tech company" - 80% of their revenue derives from selling cars, physical goods screwed together. IMHO the main reason the stock price has gone up; is because the price has gone up. Then we have retrospective rationalisation for why the price is justified.

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Re: Tesla becomes most valuable car company in the world

Post by Elysium » Thu Jul 02, 2020 7:14 am

firebirdparts wrote:
Wed Jul 01, 2020 5:25 pm
Elysium wrote:
Wed Jul 01, 2020 4:50 pm

I have theory on Tesla valuation. It is not based on conventional car sales or the battery technology. They are never going to exceed Toyota in sales and the battery tech isn't ground breaking. The bet is instead on a paradigm shift in how cars operate.
You may be right, but nobody thinks this shift will result in profits for anybody. That's the big fear. It would make trucking cheaper, though, by eliminating a lot of jobs. That might be worth something.
Couldn't they patent the technology and make it available to the industry for profits? I mean if Tesla makes fully autonomous driving possible without fault that would change the way we live, could it be like Microsoft making PC operating system or Intel making the chip? Tesla built software/chip on every car manufactured would be valued several times more than even current prices. It's a huge speculative bet that may never come to fruition, but not totally unfounded given how crazy Elon Musk is in pushing his ideas relentlessly.

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Re: Tesla becomes most valuable car company in the world

Post by rascott » Thu Jul 02, 2020 7:44 am

willthrill81 wrote:
Wed Jul 01, 2020 5:21 pm
Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
My question is at what point does a company need to actually achieve these earnings?
That's a fabulous question. I know because I've been asking it myself for quite some time. :wink:

I have no idea. Despite its revenues and hoopla, Amazon's profit is a pittance. Their front is a gift shop, while in the back they're running a very successful web hosting platform. But their profits are tiny (relatively speaking).

Maybe the market is right about Tesla, Amazon, and other LCG companies. I just don't see it. That doesn't keep me from owning them, mind you.
Jags4186 wrote:
Wed Jul 01, 2020 10:41 am
firebirdparts wrote:
Wed Jul 01, 2020 10:28 am
There are a lot of people who are really investing in Tesla just because they like it. I don't know how much money these people actually have, but whatever they have, they tripled it since Musk's "420" tweet.

As you all know, the car business is very, very cruel, and I don't think anybody really expects them to make that kind of money. I don't think anybody really expects Tesla to pay a $100 a share dividend or anything like that.
Yes, a legitimate concern I have with the stock is with the "Robinhood" investors who buy the stock because the brand is cool. What if something cooler comes along? Of course, I have no idea if Robinhood investors can actually move the market as those folks on CNBC claim they do.
You doubt the efficiency of the market? :shock:

Hint: I've never believed the market to be as efficient as many do.
After being a stock market investor for roughly 25 years.... I've come to conclude that the best stocks to own are usually the ones that don't seem to make much sense from a typical valuation outlook.

Even better than that is just buying the market index and then spend your time doing something else to increase your income.... something that provides exponentially better returns than endless hours attempting to outsmart another investor.

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Re: Tesla becomes most valuable car company in the world

Post by firebirdparts » Thu Jul 02, 2020 12:22 pm

Elysium wrote:
Thu Jul 02, 2020 7:14 am
firebirdparts wrote:
Wed Jul 01, 2020 5:25 pm
Elysium wrote:
Wed Jul 01, 2020 4:50 pm

I have theory on Tesla valuation. It is not based on conventional car sales or the battery technology. They are never going to exceed Toyota in sales and the battery tech isn't ground breaking. The bet is instead on a paradigm shift in how cars operate.
You may be right, but nobody thinks this shift will result in profits for anybody. That's the big fear. It would make trucking cheaper, though, by eliminating a lot of jobs. That might be worth something.
Couldn't they patent the technology and make it available to the industry for profits? I mean if Tesla makes fully autonomous driving possible without fault that would change the way we live, could it be like Microsoft making PC operating system or Intel making the chip? Tesla built software/chip on every car manufactured would be valued several times more than even current prices. It's a huge speculative bet that may never come to fruition, but not totally unfounded given how crazy Elon Musk is in pushing his ideas relentlessly.
Could be. There are now about 60 million cars made per year. If you could get $1000 a car out of half that many, that would be $30 billion. Initially car sales could surge, but I think the big fear is that long term, if there are driverless cars running around everywhere for hire, the total number of cars that society can use would go way down.
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Re: Tesla becomes most valuable car company in the world

Post by randomguy » Thu Jul 02, 2020 12:49 pm

mrspock wrote:
Wed Jul 01, 2020 5:46 pm

I would go check out the advertising business of your favorite tech stocks like Google. People laughed at them years ago too with their "lofty" valuations, and how little revenue they had vs. the old guard (TV networks, new papers)... suffice it to say, they aren't laughing anymore. Also, PE ratios really? Remember Amazon? Did anyone learn anything from that? When companies are able to re-invest earnings with high rates of IRR, PE isn't the right way to value a company in it's "growth" phase.
Definitely. I remember people talking about how absurd it was that amazon was worth more than Barnes and Nobles and Borders put together. Of course the other side is all the growth companies who never pan out.

Tesla isn't going to justify their current valuation off selling cars alone. But maybe they win the self driving car game (personally I would bet on Waymo), maybe they can monetize the supercharger network, maybe the solar roof becomes huge, maybe they become a big player in the semi market, mabuye they grow their battery division and supply most of the EV market, and so on. Depending on how many of those gambles pay off will determine if Tesla stock was a good gamble.

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Re: Tesla becomes most valuable car company in the world

Post by garlandwhizzer » Thu Jul 02, 2020 1:10 pm

I believe Tesla's price action is a measure of how much sentiment is now driving the market as opposed to fundamental measures like PE, PB, etc.. We're in a market situation where many investors expect zero real returns on bonds going forward and stocks are generously priced even during massive unemployment and a recession. Investors are overlooking the hurdles and embracing tech with its promise of potentially reshaping the future and relative immunity to the crisis. Thus companies like AMZN and TSLA command what look like absurdly rich valuations in this environment while long shunned value/bricks and mortar continue to struggle.

Where does one invest in such a world? I see no risk-free significantly positive real expected return anywhere. In the absence of that investors seem to gravitate toward very optimistic assumptions about transformative companies that have the potential to reshape the future just as computers and iPhones have done. Years of future profit growth is already priced into Tesla now and it has attracted MOM/day traders who buy simply because it's going up and also devastated short sellers who must buy it to fulfill their contracts. Tesla has an attractive narrative about its future potential and investors are willing to buy hope because of the dearth of good concrete alternatives now. Whether all those future rosy expectations for Tesla, AMZN, etc., will turn out to be true or not, I have no clue. My guess is no but I was wrong about AMZN years ago and may be wrong about Tesla now.

What is clear is that there is a lot of money looking for places to invest in a tough market environment and apparently all it takes is a good story and positive price action to drive prices higher and higher. A lot of excellent long term future profit and growth for Tesla and to a lesser extent the market as a whole is already priced in to current prices. If investors were emotionless and sentiment free IMO Tesla wouldn't have had this big run and the market wouldn't have had such an exuberant bull since 3/23/2020. Sentiment has driven both, the certainty that a vaccine is coming and that recovery will be complete at some point before too long. Add to that investors faith that the FED and Congress will be a reliable market backstop regardless of what happens. That backstop removes moral hazard in both corporate bonds and stocks and encourages risk taking and sentiment driven investing. I hope that the future is as positive as the market seems to believe at least for these glamorous LCG tech companies that drive the market. IMO, however, that is not certain. The near term future may hold more risk than is currently perceived by the market along with less reward. Time will tell.

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Re: Tesla becomes most valuable car company in the world

Post by 1789 » Thu Jul 02, 2020 1:10 pm

rascott wrote:
Thu Jul 02, 2020 7:44 am
willthrill81 wrote:
Wed Jul 01, 2020 5:21 pm
Jags4186 wrote:
Wed Jul 01, 2020 9:53 am
My question is at what point does a company need to actually achieve these earnings?
That's a fabulous question. I know because I've been asking it myself for quite some time. :wink:

I have no idea. Despite its revenues and hoopla, Amazon's profit is a pittance. Their front is a gift shop, while in the back they're running a very successful web hosting platform. But their profits are tiny (relatively speaking).

Maybe the market is right about Tesla, Amazon, and other LCG companies. I just don't see it. That doesn't keep me from owning them, mind you.
Jags4186 wrote:
Wed Jul 01, 2020 10:41 am
firebirdparts wrote:
Wed Jul 01, 2020 10:28 am
There are a lot of people who are really investing in Tesla just because they like it. I don't know how much money these people actually have, but whatever they have, they tripled it since Musk's "420" tweet.

As you all know, the car business is very, very cruel, and I don't think anybody really expects them to make that kind of money. I don't think anybody really expects Tesla to pay a $100 a share dividend or anything like that.
Yes, a legitimate concern I have with the stock is with the "Robinhood" investors who buy the stock because the brand is cool. What if something cooler comes along? Of course, I have no idea if Robinhood investors can actually move the market as those folks on CNBC claim they do.
You doubt the efficiency of the market? :shock:

Hint: I've never believed the market to be as efficient as many do.
After being a stock market investor for roughly 25 years.... I've come to conclude that the best stocks to own are usually the ones that don't seem to make much sense from a typical valuation outlook.

Even better than that is just buying the market index and then spend your time doing something else to increase your income.... something that provides exponentially better returns than endless hours attempting to outsmart another investor.
I partially agree with you. No one can discuss the speculative returns in stock markets which makes markets not very efficient. The key and the difficult part is one never knows to abandon/sell the speculative stock as it can go in any direction moving forward, but in general gravity pulls them down and destroy most. When i look at stocks like the ones below, i remember 1993-1999, and i understand not everything same with that period but still how can anyone justify these prices...

Tesla
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Re: Tesla becomes most valuable car company in the world

Post by marcopolo » Thu Jul 02, 2020 2:20 pm

I wonder if the guy (DanMahony?) that was shorting Tesla and calling for Dow 16,000 with supreme confidence is still active on this forum?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Tesla becomes most valuable car company in the world

Post by orenishi » Thu Jul 02, 2020 2:38 pm

I have not been in a Tesla, nor do I follow their financial reports, but it's hard not to read about them on a weekly basis. Two things that I can't understand about this company:

1 - So many seemed to be talking about an inevitable bankruptcy or significant financial distress just 10 months ago. Now, analysts can barely keep pace with their excessive price targets and now 'it's Tesla's world and everyone else is paying rent.' What happened in such a short amount of time that could move such a swing in this narrative?

2 - Musk seems to get off very easily compared to other execs. The private funding comment, pushing to open the Fremont factory in the midst of CV, etc. Just this week, he sent a company-wide email encouraging workers to push as "breaking even is looking super tight." Even if they don't break even, he must've known that this would be leaked and the public would respond positively to it, pumping up the price of the share. It was a win/win.

I think the guy is doing incredible things and he is a true innovator, but I do wonder how much of this stock increase is just noise. Are they really more valuable than Toyota? Perhaps in a decade or 2, but not right now. Even Nikola is having a massive run with barely anything to stand on. This almost seems reminiscent of the 3D Printing industry that went gangbusters at the end of 2013. However, I do realize that EV's are more practical than printing your own tools/products.

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Re: Tesla becomes most valuable car company in the world

Post by bluegill » Fri Jul 03, 2020 6:32 am

Ron Barron of Baron Funds spend a lot of time and effort promoting Tesla. I suspect "Pump and Dump" when I hear Ron Barron talk.

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Re: Tesla becomes most valuable car company in the world

Post by minimalistmarc » Fri Jul 03, 2020 6:50 am

marcopolo wrote:
Thu Jul 02, 2020 2:20 pm
I wonder if the guy (DanMahony?) that was shorting Tesla and calling for Dow 16,000 with supreme confidence is still active on this forum?
I think you know the answer. And if he was active he would say he covered his short and went long, but forgot to tell us.

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Re: Tesla becomes most valuable car company in the world

Post by TomatoTomahto » Fri Jul 03, 2020 6:56 am

minimalistmarc wrote:
Fri Jul 03, 2020 6:50 am
marcopolo wrote:
Thu Jul 02, 2020 2:20 pm
I wonder if the guy (DanMahony?) that was shorting Tesla and calling for Dow 16,000 with supreme confidence is still active on this forum?
I think you know the answer. And if he was active he would say he covered his short and went long, but forgot to tell us.
I miss Dan. We disagreed on Tesla, but he was a good guy. I hope he got out with his shirt still on.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Tesla becomes most valuable car company in the world

Post by Valuethinker » Fri Jul 03, 2020 8:24 am

orenishi wrote:
Thu Jul 02, 2020 2:38 pm

I think the guy is doing incredible things and he is a true innovator, but I do wonder how much of this stock increase is just noise. Are they really more valuable than Toyota? Perhaps in a decade or 2, but not right now. Even Nikola is having a massive run with barely anything to stand on. This almost seems reminiscent of the 3D Printing industry that went gangbusters at the end of 2013. However, I do realize that EV's are more practical than printing your own tools/products.
Tesla is not vaporware. There are real cars out there, running, and customers love them. Yes there are bubbles in tech, there always have been (back to radio companies in the 1920s, and electronics companies in the early 60s, where merely renaming a company with 'Electronics or 'tech in the name caused a jump in share price. You may remember the blockchain bubble of 2018-19 which was similar in nature. Or the PC bubble in the early 80s (there was that show "Catch the Fire" which was a drama about that time period?).

Musk is as much a problem for them as he is an asset. Like a lot of Founders, his strengths become his weaknesses. In some ways he feels like a Steve Jobs without a Johnny Ives & a Tim Cook (or if they are there, they are invisible). Out of control. He's making enemies (eg securities regulators) that he does not need to make. Most of the great companies seem to have a duality with a CFO or COO or other figure who complements the charismatic leader.

Charismatic leaders who are publicly vicious and destructive have a half life. (You could argue Larry Ellison of Oracle proves me wrong, or arguably Steve Jobs).

Tesla is a car company on a tech company multiple. The market is betting that they can grow up and be a car company or that they can do a Personal Computer to the car industry's IBM Mainframe - totally disrupt it.

I shall stick with my original opinion - buy the car, not the stock.

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Re: Tesla becomes most valuable car company in the world

Post by sabhen » Fri Jul 03, 2020 10:30 am

How can Elon lead two mega successful companies Tesla and Spacex? where does he find the time?

That is a big mystery to me.

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Re: Tesla becomes most valuable car company in the world

Post by DH0 » Fri Jul 03, 2020 10:37 am

A big question going forward with Tesla will be how high they can push their gross margins. If you look at some of the largest traditional automakers like Toyota and VW they're among the top 10 largest companies by revenue (> $250B/yr) but have crumby gross margins (high teens) leading to only modest profitability. In comparison Apple, which is a reasonable "tech company" analogy to Tesla in that they actually sell physical products, has similar revenue to a large auto manufacturer but ~35% gross margins and is consequently worth 1.6T.

The Bear case is that Tesla will always be a car company and never legitimately surpass 15–20% gross margins, and that their margins are already inflated by accounting tricks (~25% in Q1 2020).

The Bull case is that their competitive advantage in EV tech and autonomy will eventually allow them to achieve Toyota-like revenue and Apple-like gross margins.

I've been a shareholder since ~$35/share and must say I've been pretty impressed with the way these guys operate. Growing a company from 0 to 25B in revenue in ~8 years is no small feat.

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Re: Tesla becomes most valuable car company in the world

Post by Enzo IX » Fri Jul 03, 2020 1:03 pm

I drank the KoolAid I bought the stock right after he launched his rocket into space. It is the first individual stock I have bought since the 1999 tech bubble, and switched all my holdings to index funds investing.

Bought just enough to make to interesting if it 10x's in 10 years.

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Re: Tesla becomes most valuable car company in the world

Post by 240U » Fri Jul 03, 2020 8:06 pm

I think TSLA will continue at this level until September 15th, It may go up or down in August when the financials are released. But then it will gain another $200-$250/share on or about that date. Then come the end of the year when Shanghai Phase 2 comes online and Model Y and the new battery technology production It could hit $1750 or higher. 2021 with Berlin and Austin coming online and CT and the SEMI are in production with the new battery technology. The sky is the limit.

I purchased $1000 worth about 8 years ago at about $35/share. Over the next couple of years I sold at peaks and then repurchase in dips. I made enough to recover the $1000 from the initial purchase. I now have over 100 shares and I have a lot more value in an individual stock than I would normally have, DW really doesn't like that but then she considers it a gamble not an investment. I have decided to stay the course for at least 2 more years. As long as Tesla is still releasing disrupting technology I will continue. When it starts release tweaks as new product I will let it go.

The utility support products will reap an even more important benefit form the new technology than the cars. Residential and commercial products, Powerwall etc., may benefit from it. Powerwall doesn't use the same technology as the cars for its batteries so I don't know if they will get the new technology soon. Starlink will probably not play a significant role for the cars in the near future, 5 years or so out maybe.

Do I think any of this makes any sense? No. It is downright crazy! But to answer the original poster it is not the largest company in the world by market cap. It may be one day though.

We own a Model 3 and it is my daily driver. I love the car. I ride to work while it does the mundane task of driving the car. Other than tire rotation and washing the car there has been no maintenance. I have had to replace the front license plate bracket. Never touch the car in front of you. The damage was just the bracket as the car figured out I was going too fast(my bad) and hit the brakes and prevented a worse situation. Then one day after work I was walking out to the car and noticed the roof window had stress cracked. I made an appointment from my app and the next week I went in to have it replaced, free of charge, and they gave me a model S for the afternoon. Great car and great company.

All in all it is an exciting stock. I just wish I wasn't nearing retirement age. If I were younger I would have been willing to risk more.

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Re: Tesla becomes most valuable car company in the world

Post by hagridshut » Fri Jul 03, 2020 8:57 pm

Valuethinker wrote:
Fri Jul 03, 2020 8:24 am
Musk is as much a problem for them as he is an asset. Like a lot of Founders, his strengths become his weaknesses. In some ways he feels like a Steve Jobs without a Johnny Ives & a Tim Cook (or if they are there, they are invisible).

Out of control. He's making enemies (eg securities regulators) that he does not need to make. Most of the great companies seem to have a duality with a CFO or COO or other figure who complements the charismatic leader.
Franz von Holzhausen is Tesla's equivalent to Johnny Ive. He's been the head of design at Tesla since 2008, and is responsible for overseeing the design of every Tesla vehicle from the Model S onward. von Holzhausen is the guy who broke the Cybertruck window during the reveal event last year.

Jerome Guillen is the closest that Tesla has to a Tim Cook of Steve Jobs era Apple. He oversees all automotive operations at Tesla, and has been at the company since 2010.

Musk has an excellent President/COO at SpaceX: Gwynne Shotwell.

Both Tesla and SpaceX do follow the duality trend.

Musk is crazy (or visionary, depending on one's perspective), but he has a solid team behind him at both Tesla and SpaceX.
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