The increase in the Tesla share price has taken the company’s market capitalisation to in excess of $51 billion with General Motors just under $50 billion. As a consequence, by market capitalisation Tesla is the largest automobile manufacturer in the USA. This begs the question, is Tesla really a better bet than General Motors in the longer term?
Cars manufactured
In 2016 General Motors sold 10 million vehicles while Tesla sold just 76,000 which is a significant difference by any stretch of the imagination. When you bear in mind that Tesla lost $773 million in 2016 and General Motors made a profit of $9 million over the same period, there seems to be an awful lot of hope value. The renewed interest in Tesla stock has been boosted by a recent broker note which suggested a target price of $368 a share against the current price of $312. It seems that everybody wants a piece of the Tesla action at the moment!
Hope value
While there is no doubt that Tesla is making great strides in the electric car market it will be some time before the company is posting regular profits. Indeed Tesla has only ever posted two profitable quarters in its whole public listed history. Over the same period the company has raised billions upon billions of dollars of excess capital which has been burned by research and development costs together with expansion plans. Some analysts believe that Tesla lives by a different set of rules to traditional growth companies which would have been slaughtered for burning that amount of cash over a relatively short period of time.
Indeed just recently the company came to the market to raise yet more funds and once again investors were happy to buy into the story.
Is Tesla on the verge of something special?
The way the share price is reacting it does look as though Tesla is on the verge of something special although many analysts are still sceptical of short to medium term profitability. Despite the fact there has been significant criticism of the company, and Elon Musk’s management style, this has not dented the share price performance in the longer term. We all know that electric cars, in some shape or form, will play a major role in the future automobile industry. It is obvious that fossil fuels cannot go on forever and at some point traditional vehicles will need to switch to a new long-term fuel source. But are investors banking too much on Tesla?
Living the dream
Elon Musk is a serial entrepreneur who has amassed billions of dollars in paper wealth even if his cash in the bank is significantly less than that. There are some who believe that he is literally too far ahead of his time and the markets and the experts do not fully understand his targets. He has a vision for Tesla which would see the company dominate the electric car market and bring affordable vehicles to the masses. This is a man who has been there, done it and worn many different T-shirts and while some of his hopes and aspirations for the future are “out of this world” he has not done too badly with Tesla so far!
How long has the company got before investors will demand regular profits?