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Comment by sb057 | Hacker News Reader

Here's a two-second method to determine whether TSLA is overpriced: currently, their market cap is $659B. The combined caps of Toyota, Volkswagen, Mercedes-Benz, Porsche, BMW, Honda, General Motors, Ford, and Nissan is only $629B. So unless Tesla is worth $30 billion more than all of those companies combined, either those companies are undervalued, or Tesla is massively overvalued.

Keep in mind, Tesla sold 367,500 cars in 2019, while those other companies sold over 34 million cars, or nearly 10,000% more. I realize that stock prices are based on future profits, and working capital is factored into it, but still, I just don't see the rationale in an ownership stake in Tesla being that much more valuable.

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You’re trying to value a company without looking at debt, so you’re missing the big picture.

Total Debt:

  VW.     $237B
  GM.     $192B
  Toyota. $190B
  Ford.   $155B
  Daimler.$108B
  Nissan. $42B
  BMW.    $80B
  Honda.  $42B

So your market cap analysis missed ~$1 trillion of enterprise value in your comparison set.

Simply put, the stock market cap is the total company value minus the debt.

Tesla debt by comparison is $14 billion.

All those companies together being worth only about 3x Tesla is perhaps surprising, but the market is weighting for the possibility that their entire current product lines will be virtually unsellable if not illegal to sell in a decade or so.

Thank You. Are there any easy way to simply get this Data without manually looking up each Stock's balance sheet?

Basically that’s what I had to do, but on macrotrends.net

Thank You again for your time and input.

Tesla sells less than 1% of the vehicles that these companies sell combined. Are you seriously suggesting that Tesla production will increase by 100x within a decade? Even if we assume that 100% of the vehicles sold in a decade are electric (highly unlikely), the majority of the increase is likely to come from the other companies. They are not going to sit still and let Tesla devour them.

> Are you seriously suggesting that Tesla production will increase by 100x within a decade?

Tesla scaling electric vehicle and battery production by 60% CAGR for a decade doesn't seem too ridiculous when you put it that way. And that doesn't factor in new products. Look at Apple in 2007.

At what CAGR has their vehicle production scaled over the past 5 years?

  2014   16,689
  2015   25,416
  2016   47,644
  2017   50,140
  2018   191,627
  2019   192,250
  2020   500,000 est

Toyota, Volkswagen, Mercedes-Benz, Porsche, BMW, Honda, General Motors, Ford, and Nissan combined have almost a trillion dollars worth of debt. So while their market cap is $629B, their value is north of $1.5T.

Think of it like a house. If you pay me $200K for my house plus assume my $300K mortgage, then you say that the value of my house was $500K.

When comparing values of companies, use the "enterprise value" metric, not the "market cap" metric. Enterprise value metrics will still show an overpriced Tesla, just slightly less overpriced.

Ignoring debt and actual enterprise values, the more important point is that any business valuation produced by comparing to market prices of other businesses is flawed at best.

Unless you are one if the few and nearly extinct economists who believe the stock market is perfectly efficient, comparing by market price often leads to justifying one mis-pricing by another mis-pricing.

For example, Yahoos ridiculous pricing during the bubble could always be justified by even more ridiculous prices for companies with near zero revenues by pointing out Yahoo had revenues and was growing them incredibly fast.

The only question you need to ask about Tesla is how can a $30B revenue company be worth a $680B valuation? How long before Tesla’s earnings catch up to the risk free returns on $680B (roughly $32B/year)?

Assuming an optimistic 15% after tax profit margin for the rest of its life, Tesla would have to grow revenues seven times. At 15% a year, revenues double ever 5 years. So in roughly 14 years Tesla would be reach an annual after tax profit of $32B. And it would still be $200B behind in total net profits, it takes nearly 20 years for Tesla to generate more total net profit than the risk free investment.

Is that reasonable? It all depends on the risk Tesla falls short, and whatever assumptions are in your DCF analysis. That’s a long time to catch up, I’m gonna go out on a limb and say far from a slam dunk.

Tesla is the innovator in this space for 10+ years. Only a few of the companies are all in on electric- and 10 years from now there will be no new old school cars. Some of them have even giant liabilities because of the mess to the environment they have created, which also damaged their brand. Some of them probably wouldn't even exist anymore was it not for government backing/looking away and in some cases even intervention.

Many of the companies mentioned are quite far behind, and will face severe challenges in the coming years trying to adjust with little marging for error.

But most importantly Tesla is also a battery company! Who knows, most of the other players might even have to buy batteries from Tesla.

Gut feeling tells me that Tesla will still grow significantly, especially if they start selling batteries to other markets at scale, but also the car business itself will experience a tremendous growth.

Tesla car sales will grow, but their stock continuing to grow is not sustainable. Tesla certainly make desirable cars, but I don't see their product being hard to replicate should any other manufacturer make a serious effort. Other manufacturers will make a serious effort when it makes financial sense to.

The only way for the stock price to be reasonable is if Tesla completely replaces all of the listed car companies combined. That is not realistic, no matter what you think of Tesla’s products.

I think they will all die because they are too far to innovate it's why I finally bought shares after the split [1].

[1] https://news.ycombinator.com/item?id=25214484

Or maybe you're trying to rationalize your investment thesis after buying into the stock.

- Sincerely, a TSLA hodler since summer 2019, when I bought my first car, a Tesla.

I'll be holding the stock I have, but I don't think traditional car companies are going away any time soon. On the contrary, I'm thinking of getting a Taycan, a BMW or some other EV car.

Tesla isn't overpriced per se, but once the spigot of cheap debt and printed money stops, we might see a good decline from the stock market. Not that I'm going to bet against the market either.

My investment thesis was made prior to my purchase, not after. I make a decision and I stick to it. This is a 5-year investment for me.

I didn't say you made your thesis after buying it. I'm saying you might be overweighing your thesis when you bought into the stock, being the natural hopeful optimists we all are. That being said, there's always the chance that Tesla could be an Apple for cars, which pretty well sums up my opinion about the car itself - great design, but lots of sharks in the water. Of course, Apple has it much easier.

Betting that every single one of those car companies will die is a wildly risky bet. One can believe that Tesla might replace one of them, but all of them? Be reasonable.

There are a lot of companies dedicated to EVs. The larger companies are going to have to buy the smaller winners to be relevant. The issue is the dealer network laws are going to hurt the existing companies, I think.

NKLA (seems like a scam), NIO (seems really good), and with a huge amount of SPACs buying EV companies, they are going to have lots of room to grow. Also many of these companies have been operating for a decade trying to create a product like KNDI, PLUG and they are getting closer with their products. I didn't jump into TSLA early as it wasn't profitable, but now they are making money so it fits my investment principles.

Take a look and do some research here at the competitors to the traditional car dealers [1].

[1] https://docs.google.com/spreadsheets/d/1sKMfBZNkHdvaVKmweuv3...

What about all their "gas" stations? Tesla is the only one with a large recharging infrastructure that is already in place.

Comparisons that try to make Tesla seem like an ordinary car manufacturer are probably quite a bit off.

How much of an advantage does that really represent?

They are ahead of the field, their chargers are faster, but there's already thousands of other places with relatively high power chargers that can likely be upgraded as demand materializes (at a minimum, the competition is not starting from 0).

I too think tesla is overvalued, but your comparison to ICE companies strikes me as missing that they have fundamentally different technologies those other companies are no where near developing on their own and will likely have to license. Tesla investors are betting that a lot of the ICE based car expertise will be worth just pennies on the dollar if the shift to electric cars happens en masse.

How it can happen without them? To build cars you need infrastructure, factories, and workers and these companies have that already.

There won’t be mass shift without these companies driving the shift, simply because there won’t be enough cars for the demand.

> and will likely have to license

There are already a dozen other electric models on the streets. Why should they have to license from Tesla? The electric engine part of the vehicles is actually not that hard - it's the battery that is complicated and Tesla doesn't even produce the batteries in their cars. That's done by Panasonic.

VW, Toyota, Nissan have supply chain management under control, they don't need to learn it from Tesla.

Heck, let's also not forget that patents aren't copyright.

Patents last 20 years, and it's not unusual for 5 of those to past between filing and the invention being turned into a usable product that hits the market.

That new motor that Tesla uses is pretty amazing, and must at least be difficult since almost no other companies use it and instead just deal with reduced range and efficiency.

Tesla's motor isn't what drives the range and efficiency; the battery assembly is their key differentiator. Tesla currently has the industry-leading thermal design; it's ability to cool batteries and prevent thermal-based degradation is far more efficient/effective than anything that competitors have yet been able to put on the market.

Supposedly GM's Ultium battery platform will equal or exceed Tesla's batteries, but that remains to be seen as the first Ultium-based cars don't come out until 2H 2021 and all we have to go on right now are press releases.

VW holds some patents and exclusive licenses on solid state batteries, and is planning to go all EV within the next few years, though the SSB autos aren't expected until 2025 at the earliest, assuming VW is able to commercialize the technology.

Range went up about 10% when they switched to the "Raven" motor. That ain't nothin'.

What fundamentally different technologies do you believe they are nowhere near developing?

Multiple other manufacturers already make and sell EVs, in some cases outselling Tesla in their home territories.

Moreover, while Tesla assembles their own batteries, the underlying battery cells are made for them by Panasonic, which owns the IP to the chemistry. (Tesla's IP relates to the assembly, referring both to the process and the finished battery product.)

And that IP is only valuable until the inevitable switch to solid-state batteries, which have significantly more capacity and durability than anything on the market today. And other automotive companies have already acquired exclusive licenses to the most (commercially) promising research.

What are your thoughts on the upcoming battery tech from Tesla they announced during their "battery day" in September? Your comments don't seem to reflect what they've been working on and what's coming.

https://www.youtube.com/watch?v=l6T9xIeZTds

Tesla announced plans to eventually make tabless batteries, which theoretically could increase range by 16%. With everything Musk related, take the original deadline given and add 3 years. As no deadline for this was given, I assume this tech is not yet commercially viable.

Note that Panasonic, which will actually be making the batteries, has indicated in its own investor releases that it is working on developing the batteries but they aren't anywhere close to production-ready yet.

The other announcements relate to making the batteries cheaper, but would not otherwise extend performance (and in some cases would reduce performance, but due to the reduced costs would come out ahead on a $/kWh basis).

Like anything "upcoming" announced by Tesla, to me it's all marketing no substance until proven otherwise.

Yes I also find these arguments absurd. These companies have been building cars for decades and now suddenly they would be somehow out of their element switching complex combustion engines to much simpler electric motors? Unless Tesla makes some fundamental advancement in battery technology (which again as you pointed out, is not even their IP) it doesn't seem there is that much of a gap.

This appears to have a lot of similarities with the dot-com bubble where the new internet companies were thought to quickly overrun the old, "uncool" companies. It just doesn't happen like that. Plus there is a vested interest in the home countries of these car companies to see that these companies survive. Sure some of them might be ripe for losing a lot of market share, but they still have time to catch up as the world is slowly turning to mostly EVs. It's not the same as with internet companies where people can switch their search engine the next day if they so desire.

Tesla isn't just a car manufacturer. Solar, batteries, charging network, car dealership, self driving tech...

What's the market cap of a gas station chain comparable in scale to the Tesla charging network?

What's the market cap for however many Ford dealerships it would take to match Tesla's sales capacity?

Rinse repeat for every industry Tesla is in.

"Skeptics say, it would have to sell every book being sold in the world today to justify its stock price" - Amazon in 1997 [1]. The stock is 50 times higher now.

I have no idea if history will repeat itself, but I find the parallel interesting

[1] https://youtu.be/8SSj7KwBwr8?t=660

They were overvalued in 1997. Even they knew it and started pivoting away from being just a book store shortly after.

>their market cap is $659B.

WOW. I knew their stock price has been like a rocket but I dont follow them closely. ( They were over priced ages ago ).

But $660B! Shouldn't that make Elon Musk the richest person on earth? I remember he owns 20% of Tesla?

Edit: Turns out Jeff Bezos [1], even after the divorce settlement , has a net worth of ~$187B. Elon is at $146B. Until SpaceX's IPO at ~$100B [2], which will add roughly $54B to his net worth... he will be the richest on Earth.

I mean I dont know how Tesla is a $600B company, but I sure as hell think SpaceX is worth a lot more than $100B.

[1] https://www.forbes.com/sites/sergeiklebnikov/2020/12/19/elon...

[2] https://www.forbes.com/sites/daviddawkins/2020/10/23/elon-mu...

Not the richest, but the second richest according to current estimates. Second to Jeff Bezos only, who also massively increased his wealth this year.

https://www.forbes.com/real-time-billionaires/ (I had to disable essentially all content blockers to get this site to load.)

You could have said the same thing about Apple 12 years ago.

Apple 12 years ago was only worth $50 billion. At the time, Apple had higher revenues (~40 billion dollars a year) and way higher margins. They made $14 billion gross profits in the year 2008, in 2008 dollars, while Tesla will have gross profits of only $6 billion 2020 dollars this year.

I was comparing it to Nokia then

What your analysis is missing is the profit margin of each car maker. Never mind market share, what is Tesla's profit share? Does someone know this?

Last quarter TSLA reported earnings of 62 cents per share. That makes for a P/E ratio of 1321 at $695/share. (Per Thinkorswim)

Tesla's profit margins in the most recent quarter are typical for the industry, ~20% gross, ~10% EBITDA, ~2-3% after tax net margin. So their profit share of the industry is similar to their market share (i.e. very small).

Tesla's profit share is small enough that it is a rounding error. It is not the Apple of the automotive world.

Quarterly profits for the most recent quarter (Q3 for most companies, Q2 for Honda): Toyota: $4.6 billion. Honda: $4 billion. GM: $4 billion. VW: $3.8 billion. Ford: $2.4 billion. Fiat: $1.4 million (not a typo, that is an m there.). In all cases, these profits were below their 2019 quarterly profits for the same quarter. Total of approximately 18.8 billion.

Tesla: $331 million, or approximately 1.5% of the Q3 profit share.

(Note that Hyundai had a loss and so is excluded from the profit share calculation. In all cases, these are global numbers. https://www.caranddriver.com/news/a34602700/auto-sales-profi.... For all automakers except Tesla and Fiat, profits are related to the sale of automobiles. Fiat's profit is related to a special one-time accounting event, and Tesla's profit, as with all of its previous quarterly profits, relates to the sale of credits to other automakers; Tesla has yet to have a profitable quarter based on the sale of vehicles.)

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