Tesla Passes Ford by Market Value

Ford has all the infrastructure that Tesla is attempting to build now (aside from the batteries, but that is something that Ford could easily partner with another manufacture to get). They know how to mass produce cars (granted right now, ICE cars). That's not an easy feat. They have a large manufacturing and maintenance base that, frankly, Tesla can't replicate. The bet is that Tesla will be the first successful company to market, or that they will hold some patents which will prove valuable in the future. The market is not betting that they'll beat Ford or GM.

Realistically they more often invest on their perception of others perception of the promise of future value. How those perceptions get linked together is interesting but it is not nearly as objective as you imply.

I'm a huge fan of Tesla and think that they will succeed, but saying that the stock is "priced for perfection" is putting it mildly.

I don't think anyone has any trouble telling a story in which Tesla is ultimately a more valuable company than Ford. And I agree that's a big deal. But this comment thread suggests the market cap comparison is some kind of milestone. It's hard to articulate what that milestone would be.

People love the machines they make.

Ford can add body stylings all they want, but they can't match tesla or spacex or solar city.

I just don't think they have it in their DNA - I'm actually surprised we haven't heard of any of the big three going all out attempting to acquire tesla.

What would be a very interesting event would be when Tessa builds a long haul delivery truck/trucks in general. There is no way they haven't thought of a general platform chassis which can have modular tops put on them.

Wouldn't it be great if tesla sold a chassis to boutique shops like there were in the 20s...

But Apple won people over with the actual product, not with a great product promise that has been implemented haphazardly.

However, Tesla today is an integrated energy company. They make Solar Cells (the part of the business formerly called SolarCity), Stationary Battery Systems (generally referred to as Tesla Energy) that range in size from residential to grid sized and of course cars (which ultimately also use batteries).

Comparing them to car companies is like comparing Amazon with bookstores. Yes Tesla is a car company and yes Amazon is a bookstore. But both both of them are so much more than those simple comparison.

In fact I suspect the Amazon comparison here is rather apt because Amazon is now in the situation where Amazon Web Services is essentially able to prop up the retail business. I suspect Tesla Energy will be able to prop up the car business in the near future.

A trillion dollars? For a niche/luxury car company? What fantasy is that based on?

> it's biggest current hurdle is getting it's production up to meet an enormous demand

While enormous to Tesla, actual demand is pretty small compared to other car companies.

It doesn't help that even the most "affordable" Tesla is far more expensive than the average competitor's EV or hybrid vehicle[1][2], let alone it's base price (not final sale price) starts off above the average new car purchase price (final sale, after upgrades, etc) for the entire industry[3].

There's a lot of hype around Tesla, but that doesn't mean they're going to take over the auto industry, let alone become larger than the largest auto makers around who produce "Everyday Joe" cars for the rest of the population.

[1] http://evobsession.com/10-best-electric-cars/

[2] http://www.caranddriver.com/best-hybrid-electric-cars

[3] http://mediaroom.kbb.com/new-car-transaction-prices-up-2-per...

Huh?

Word? https://seekingalpha.com/article/4031938-ford-potential-grow

Combining the 5 largest auto manufactures on earth and you are still well short of a trillion dollar company.

Edit: No, really. Ford sold over a million vans, pickups and heavy trucks last year, a market that Tesla has no apparent interest in entering.[1] The Toyota Camry alone sold 428,000 in 2014, the Honda Accord 328,000, the Corolla 340,000, the Ford Fusion 306,000, the Nissan Altima 336,000, and the Honda Civic 326,000.[2] The Tesla Model 3 will presumably be in that latter market (although those are roughly $10,000 cheaper), and if Musk is right about scaling his factory to 500,000/year, it will take a big chunk of it (but still, it's $10,000 more). (If it's in the BMW 3-series/Merc. C-class/Lexus range, 500,000/year would eat all of that market.)

[1] https://corporate.ford.com/content/dam/corporate/en/investor...

[2] https://www.bloomberg.com/graphics/2015-auto-sales/

It didn't take Apple much to take Nokia out of the game. Nokia had smartphones on the agenda for a long time. The problem was that wasn't their only focus. Apple went all hands into the iPhone.

Make no mistake, as much as Tesla is loved by the Tech crowd they are currently nothing compared to Ford and other established auto makers.

> Tesla: "We have so many idea for investments, we're only constrained by cash. Let's go back to the capital markets!"

I think becoming as big as Ford already is, is one of Tesla's most positive possible futures if all of their many ideas play out. But they are already valued higher than that. How can this possibly work? There are so many car makers, there is no monopole they could get. Same for solar and batteries.

Ford investors: "Let me soberly evaluate the company's present and future financial situation before I make any commitments"

Tesla investors: "TAKE MY MONEY"

Ford has been in business for almost 120 years, and has contributed untold billions to the economy. What a terrible company, am I right?

Ford share holders, presumably, received a return on their investment in the form of a dividend. While Telsa haven't and won't in the "foreseeable future".[1]

So your overly simplified analysis is complicated somewhat by the individual investor carrying out a risk assessment and deciding which companies should or shouldn't be in their share portfolio.

1. http://ir.tesla.com/faq.cfm

Rainy day funds look like such a waste of money until the roof starts leaking.

It was true if you held Google stock.

The market cap is closest to its value representing what it takes to control/own/sell the company.

Not even Warren Buffet thinks this. In economics, the correct measure of a value of a business is the future discounted expected value of cash flow and external utility. There's almost no way to measure this directly so major simplifying assumptions are made when applying this definition in practice.

I worked for this lovely company once where we paid hundreds of thousands of dollars to a consulting company to "research" how we were the dopest, only to have pretty much written the entire document for them. Go figure...

Enterprise value is the value of the business (the thing actually generating value) separate from the cash & debt it's holding.

For example, if I have a banana stand worth $250K, but inside the banana stand is a briefcase with $245K, then the $250K is not really the value of the banana stand - it's mostly the value of the cash inside. The Enterprise value of the banana stand is only $5K.

With the debt, the idea is the same but the sign is opposite. So if Ford is worth $50B while holding onto $100B of debt, that implies that the enterprise value is $150B.

Comparing the valuations of Ford and Tesla without subtracting out cash and debt is like running a race without mentioning that the losing racer started a half mile behind. Though they 'lost' by one metric, they're still the faster runner.

Obviously both are worth the same amount: each company has an "enterprise value" (the value that all investors in all securities place on the underlying enterprise) of $1,000,000. The only difference is that company A has only one class of investor, while company B has investors that own a riskier asset (the equity) and a less risky asset (the debt). But assuming the two companies are otherwise identical, an investor in company B can easily financially engineer themselves into a financial position that is identical to an investor in company A: for every dollar of company B equity they buy, they simply buy one dollar of company B debt. Owning $1 of company B equity and $1 of company B debt is identical to owning $2 of company A equity.

Since the choice of equity or debt financing is (theoretically) arbitrary, when comparing two companies that have very different capital structures, like Ford (mostly debt-financed) and Tesla (mostly equity-financed) you have to control for those differences. The simplest way is the add the value of each company's net debt to the market value of their equity, which gives you the total market value of each underlying enterprise.

A simple example we're all familiar with is home prices. Two neighbors might own nearly identical houses on the same block in the same town. One might have a mortgage and one might own it outright. But no matter the financial situation of the individual owners, the value of the two houses should be about the same: the value of the asset is separate from the financing of the asset.

Also, I know from experience Ford uses their ability to generate cash and borrow cheaply to give "buyouts" to large chunks of retirees at a time (ie. They offer a lump sum of $1 million dollars today instead of a pension. This almost always works out in the company's favor).

With Tesla, there's an obvious path for potential massive growth. It's not guaranteed, but the potential is obvious.

With Ford, it's like any other auto manufacturer. What surprises are we expecting? What new products or innovations? Does Ford have any path, even hypothetical, to massive market share growth relative to its current position the way Tesla does? It seems clear to me that the answer is no. Even if their Bolt is a success, they're not about to dominate the market, double their sales, and double their stock. They don't have any Model 3 type event on the horizon.

So all these comparisons of financial metrics on current value, to me, seem pointless. This is the only thing that should matter (along with whatever analysis you want to use to gauge whether Tesla is likely to be able to execute on its plans, which is a more complex question-- but performance so far makes it clear that they are experiencing steady and dependable growth of production and sales with clear, well-defined plans for further future growth.)

2: Equity Value therefore represents the market's perspective of the Net Present Value of the future cash flows less the value of the debt. Those flows, calculated using a discounted cash flow spreadsheet, could be from profits, or could be from sale of assets.

3: The analysts will forecast the Enterprise delivering a certain IRR - annualised percentage return, which is split between the debt and equity. This total return is called the weighted average cost of capital - WACC.

4: Debt is cheaper than equity, and it also has a lovely tax shield effect from the interest expense.* Debt holders get the company when the value falls underneath the total value of the debt though, so you don't want to issue too much.

5: Equity (shareholders) demand much higher returns than banks, but accept the greater risk for it. e.g. VCs have much higher expectations than banks about their returns.

6: The more debt you have the higher the returns - and risk - for the equity. Think about the leverage you can get on a house - an asset with low % returns can deliver high value (or high loss) by using a lot of bank debt.

7: There is a body of work around finding the optimum level of equity and debt for a company - basically you want to balance the risk from having too high debt (and the company value falling underneath that value and using all the equity) and the benefits of higher returns to equity=holders from having higher debt.

Going back the the original post - EV is the real value of the company, not market cap. Ford could sell down their debt by issuing more equity, Tesla could issue debt and reduce the share of equity. It all comes back to EV.

*This makes the weighted average cost of capital vary slightly as the amount of debt changes.

The "market" (albeit a more limited one) also believes that Uber is worth $70B - almost 1.5X the market cap of Tesla.

How meaningful is that?

I think it's a very tortured definition of "value", though... I don't have a Bloomberg terminal in front of me anymore to check, but I'm guessing Ford's bonds are generally trading closer to par than zero. In which case the bondholders are telling you they think there is about $100 billion worth of additional value to Ford's business beyond the value of the equity. That's a really big piece of context to this story.

I agree with you in principle that market cap is a perfectly valid metric, but when you're comparing a majority-equity company to a majority-debt company (assuming the bonds are valued as non-distressed assets) it ignores something very, very significant.

https://www.google.com/search?site=&tbm=isch&source=hp&biw=1...

China now employs over 1 million workers making solar panels. And they're ramping that up as fast as they can, and shelving coal power plants. We've reached that critical tipping point for PV solar to go vertical, and Tesla/SolarCity just built their own factory in Buffalo to take advantage.

After a while, usually decades, commodity producers take over the lions share of the market. The high end is captured by one or two of the market leaders. Being first to market helps you get there, but you still have to fight for that position.

Look at iPhone. It was the best and the cheapest smartphone for probably a decade. Now Apple only has what, 20% of the market? But they have all the profits. The other 80% goes to commodity manufacturers but they don't make any money.

Tesla hopes to be that for mobility and home energy. Even if they fail, they'll still make a huge amount of money in the ramp up, before the commodity manufacturers eat their lunch. They're the market leader right now, so the prize is theirs to lose.

2. Tesla is partnered with Panasonic, but they're practically married with communal property. They haven't outsourced this, they've put billions into building a gigafactory. What part of "doubling global output of lithium batteries" is minuscule to you?

3. In 20 years, probably half the world's electricity will come from Solar PV. Was coal a niche market? Because this will be bigger.

4. Most other car makers are licensing systems from others, not building their own, and they don't have the self-driving hardware in any cars yet. Tesla has 10's of thousands of cars on the road right now (25k just in Q1) with their second generation system, while GM and Chrysler are still fiddling with prototypes.

If you don't see how all these things connect, then I understand your view. But when you recognize how they're all interconnected it makes complete sense to me to be building all of them at once, otherwise a failure in one dooms them all.

'Sometimes' is being generous. If we can only cherry-pick the world's biggest tech successes all of whom can be counted on one hand compared to the thousands, if not tens of thousands, of other over-valued companies, then you're really not saying much here. This is like saying, "How are there poor americans, look how rich Bill Gates is!"

A few exceptions don't invalidate we're in a bubble or justify the practices that get us in a bubble - traders trying to outfox other traders by reading the tea leaves of hype and ignoring the actually profitability and practicality of the business.

>Books-a-Million - Saw its stock

>VA Linux - .... They set the record for largest first-day IPO price gain; after the price was set at $30/share, it ended the first day of trading at $239.25/share, a 698% gain (9 December 1999)

I don't think we are quite in the situation where valuations are based on updated websites. Nowadays it seems like monthly active users drives valuations which when your revenue is ad based, is a smart metric. In Tesla's case, they are actually shipping cars.

Why don't Ford produce a 60KWH car as cheaply as they can?

Rich people will still buy classic cars and Germans will still buy ICE BMWs. The vast majority of daily commute hours will be split between Teslas and whichever other manufacturers who get off their butts before it's too late.

The man who has executed the most impressive technological achievement in modern times (reusable rockets), said he would rather die than fail.

I think it's crazy to be betting against this guy. your only chance is if he dies in the process.

Tesla is not in a position to replace Ford and others, and they won't be for several years. Even then, they won't be in a position to displace anyone in anything other than consumer vehicles. They have no truck and no announcement for a truck. They have no busses. They have no heavy equipment.

But they seem to be leading the way in battery production and self-driving automobiles. If they can hold on to market lead in those two areas then they should still be able to way outpace Ford or other car manufacturers. Big IF though in terms of self-driving technology with all the other big money players racing for that grail. Energy storage and battery production they seem to be in a class of their own without much competition.

There might very well be another electric car maker upending the market, but really I think Tesla has quite a number of years head start now. Building and planning something like the Giga factory took many years. A competitor will not be able to reproduce that in a couple of years.

Tesla also sits with years of experience designing batteries now. They have a competency advantage over the established players who mainly know how to make a fossils fuel engine. Each year passing that becomes useless and dead knowledge. They also lack the software development skills of Tesla. They have mostly bought that from vendors. Tesla thus sits with expertise in the key areas for the future of automobile while the competition is very weak in these areas.

I predict a bloodbath. 10 years from now I think Tesla will be quite big and the established players struggling hard to hang on.

Greater fool theory has some problems. For one, it's not economically rational.

Well, you may want voting rights. But voting rights don't mean much unless you hold a lot of stock, and a lot of stock is non-voting anyway.

That leaves dividends and exits. An exit depends on someone having a value for the company, and can almost be looked at as a 'final dividend'. So I would essentially boil the value of most stock down to purely dividends.

If you buy it for any other reason, you are hoping that some other person will be willing to buy it from you later. Which means that other person needs a reason (voting power, dividends, or some other business move with external benefits).

But my appraisal is that many stocks exist today that have value simply because people think that other people will want the stock. It's inefficient, and at the moment of exit (death also counts as exit here) someone is left holding a bunch of stock that's worth less than what they bought it for.

Also, the "winner" of his comparison was a RAV4 EV (by about $20K) The Tesla finish mid-pack (behind the Ody)

The claims about his motives and thinking are speculative; it would be hard to find evidence of them. Even the things he says about himself often turn out to be unreliable. Certainly we can speculate on many other motives and interests, but I don't think that's useful.