Tesla Inc. was announced yesterday to have outran General Motors in market value and thus becoming the most valuable car maker company in U.S with only 80,000 units sold compared to GM’s 10 million on the last year reports.
Just one week after it had surpassed Ford Motor Co., Tesla has reached 3.3 bps increase on Monday, ending with a USD 50.9 billion market capitalization, with a share price of approx USD 312, and thus becoming the sixth most valuable car maker after Toyota Motor Corp., Daimler AG, Volkswagen AG, BMW AG and Honda.
Now, market capitalization means the total market value of all of a company’s outstanding shares. In Tesla’s case that would be approx 163 mil outstanding shares at a price of 312.49 at the current time. It is often mistaken with the company value to what it is really worth, but it actually means the price of a company at the given time. Fortunately or not, what you pay is not always what you get. One can always overpay something, considering the social appetite for cool stuff that are inflating the value of a product or underpay and get a great bargain on something others didnt see. Actually only when the value of the company is worth more than the market capitalization means that you bought a 100 dollar bill with 50 bucks for example.
In a way, Tesla’s shares are a bit disconnected from the present reality, projecting a future for which the premises are far from maturity. And today, the market has given a signal whereas shares price have market downgrades. In terms of advantages and keystones, Tesla has a huge advantage on the battery cost packs, is leading the autonomous driving, which is a breakthrough barrier, but it will take a long time until it will be a mass market choice, not to mention it lacks the industry rigor on the supply chain which is extremely costly to be done by one company, therefore it will either build business satellites or will build its own rival company.
When you dig the numbers, from the industry point of view, Tesla has a long and bumpy way to go. It is not actually a new market entry in the car making business, but rather a game changer, from the functionality of the product to its convergence with another industry, energy supply working in parallel, thus creating a parallel market, independent on the fuel suppliers which are not willing to drop their business model.
With revenues of roughly USD 7bn, and a 73% increase yoy, Tesla enjoys a momentum in the mentality change done by the tech industry. It is fresh, it gives a sense of freedom from the old business models, defiance and emotions that those companies or brands cannot deliver, it has already set barriers difficult to be overcome by both the older rivals and other potential ones. In strategy analysis, this is called a Ricardian model, which is resource based, considering the company structure and the imitation barrier, Tesla is building its products and its necessary resources, for the business and also for its customers. The existing market is constructed on the Tobin Q model, imposing an industry structure in which companies works on building and consolidating the industry as competitive groups, sharing assets, channels, complementary niches and complementary industries.
It follows a simple principle in business, that in a perfectly competitive market, no company makes economic profit, despite the accounting profit, therefore the car market industry it is almost perfectly designed to serve all top companies and the industries related to it, especially the oil and fuel and transportation in all its imperfect aspects.
Still, comparing the net present value, the top selling companies are outperforming Tesla, in terms of cash-flows. While GM is expecting revenues of roughly USD 9bn, Ford is hoping for a USD 6bn adjusted profit, Tesla expects a loss of approximately USD 1bn.
On the outlook for 2017, Tesla is betting on the advances for transportation, energy generation and storage product lines. While the business lines are focusing on delivering the products to the market, in terms of profitability, Tesla is using all project finance in order to secure the completion of the Solar City plan due in 2019, and achieve cost synergies together with decreasing the advertising spending, selling solar products from own Tesla stores and shifting away from leasing solar systems.
The 2017 milestones are crucial for their long objectives which are somehow keeping up with all tech plans and project in pipeline from the other industries that are building the grid of the new world.
It is only the past that gives future the keys to innovation. (Tesla Energy Tower)