The Motley Fool organization is generally pretty smart, but they’ve often written crazy things about electric cars. The latest is to equate Tesla Motors with Amazon.com, driving me to utter WTF’s.
The two companies couldn’t be more different. Tesla Motors makes one main product (the Tesla Model S) and some customized parts sold to other OEM’s (Toyota and Daimler), both of whom own chunks of Tesla. Amazon sells a gazillion different products through various websites, not only in the U.S. but in many other countries, and operates a large network of fulfillment warehouses. Amazon also allows 3rd parties to sell stuff through the Amazon website, and they can even send stuff to Amazon who will stock it in Amazon’s warehouses, and handle fulfillment. Finally, Amazon offers web services infrastructure that others can rent and build their own cloud based service offering.
Where the Motley Fool writer claims Tesla and Amazon are the same is two very similar attributes. Both sacrifice short term profits for long term investments and long term gains. Second, both are plowing every penny they can into growing the company, for long term gains.
As a result, both companies run at high price-to-earnings ratios, and high market caps that might seem unjustified for their earnings.
Typically, stock price valuation is supposed to be based on earnings, and projected earnings growth. Companies that earn lots of profit are supposed to be more valuable than ones who don’t. Neither Tesla nor Amazon put weight into recording earnings, and are instead emphasizing growing the company through research and development.
If one were to valuate Tesla or Amazon on earnings, the market cap would be much lower.
I’ve written about this before — the valuation put on Tesla Motors stock (TSLA) is ridiculous by normal methods of determining the value of a company. Maybe the stock market is in love with the Tesla Motors Story, and are caught up in a euphoria bubble. Or maybe the stock market has rationally decided that Tesla Motors is destined to topple the whole automotive industry?
Why would an upstart automaker with revenue’s a fraction of General Motors have a market cap in the same ballpark as GM’s? My contention is that the market believes Tesla is going to take a significant share of the overall automobile market. Tesla Motors is an extremely disruptive company in the automobile market, and they are completely knocking it out of the park in terms of delivering on promises.
Therefore, while Tesla is unlikely to actually topple the entire automotive industry, they’re absolutely shaking things up in a big way.
Today, Tesla announced the plan for their GigaBatteryFactory that’s required in order to support manufacturing the 200,000+ electric cars per year they plan to begin selling in 2017-8. Further, by 2020 Tesla claims they’ll be selling 500,000 electric cars per year. Note – the former-NUMMI factory in Fremont had capacity for 450,000 cars per year when GM/Toyota operated it.
The battery factory will by itself be producing as many battery cells as were built in 2013. All to support manufacturing 500,000 electric cars per year. My mind is reeling with what that will mean in the automobile market and salivating at the prospects of being able to afford a Tesla, because these will be their “affordable” models.
Today electric car sales in the US are well under 50,000 cars per year (I’m too lazy to look up the numbers, sorry). While that’s a huge jump over EV sales in recent history, it’s a drop in the bucket of the whole auto market. Tesla is proposing to singlehandedly increase the rate by over 10x by 2020, and that’s just 6 years away. Presumably the other automakers, especially Nissan and GM, will also be increasing their sales rate, but would they jump it by 10x?
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