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WALL STREET’S love affair with Tesla has baffled me, though a news item from Vilnius, Lithuania, may help my reasoning.
Based on the number of Tesla shares and their stock exchange price ($308.71 at this writing), this fledgling automaker surpassed first Ford and, a week later on April 10, 2017, then GM in what Wall Street calls market capitalization. As of two days ago, Tesla’s market cap, as it’s termed, was $51 billion.
Specialists say this represents Tesla’s value, and this is what baffles me.
According to Advertising Age, April 10, 2017, “GM expects to earn more than $9 billion this year and analysts predict Ford will generate profit of about $6.3 billion. On that basis, Tesla is expected to lose more than $950 million.”
This is a sizable swing, in anyone’s dollar.
Advertising Age continues, “Assuming Tesla closes at a higher valuation than GM, it will rank as the sixth-highest valued carmaker by market cap, behind Toyota Motor Corp., Daimler AG, Volkswagen AG, BMW AG and Honda. While Tesla has a long way to go to match Toyota’s $172 billion market cap, Honda is barely ahead at about $52 billion.”
Barely ahead? Yes, by market capitalization. However, according to Automotive News, February 6, 2017, Honda forecasts earnings for 2017 at $4.67 billion.
I pause here to ponder the difference between $4.67 billion in the black and $950 million (i.e., almost a billion) in the red.
Yet, according to Advertising Age quoting Wall Street analyst Alexander Potter, “Tesla engenders optimism, freedom, defiance, and a host of other emotions that, in our view, other companies cannot replicate. As they scramble to catch up, we think Tesla’s competitors only make themselves appear more desperate.”
This, Advertising Age notes, from a Tesla owner of seven months.
David Whiston is another analyst quoted in the article. He says, “The market cares more about the potential new market value of the other businesses Tesla is in than about real profit and cash flow.”
I confess I appreciate this point, at least a little. Tesla’s Elon Musk has had marked success with another of his ventures, SpaceX. And maybe traditional automakers are going the way of the buggy whip.
Granted, GM isn’t in the business of building reusable rocket boosters, a SpaceX achievement significant in economizing space operations. However, Musk has said repeatedly that he anticipates no merger of SpaceX and Tesla.
Back in Tesla’s and GM’s bailiwick, carmaking, the GM Bolt EV electric vehicle beats the lauded 215-mile range of Tesla’s Model 3. And the 235-mile Bolt is already on sale; the Model 3 has 8000 “reservation holders,” at $1000 a pop. Tesla has not been renowned for keeping to any firm introduction date, though late 2017 has been suggested.
The Tesla Model 3 is expected to match the Bolt’s mid-$30K price, but only in its most basic 215-mile-range form. Musk has suggested the typical Model 3, with battery/range upgrades, will cost around $42,000. Electrek.com predicts it’ll be more like $50,000.
I guess I wouldn’t think of Tesla competitors appearing all that desperate.
Yet, a little-heralded news release from my ancestral homeland may make a believer out of me. The Associated Press, February 4, 2017, reports that “Seeking Attention, Lithuania Builds Virtual Tesla Factory.”
According to the news item, “Lithuanians badly want Tesla Motors to build its next giant factory [estimated cost, $5.4 billion] on their soil, so to grab the attention of the California tech company, they built a virtual version of the facility inside the ‘Minecraft’ video game.”
“Vladaz Lasas, who was behind the project, says they wanted to send a message to Tesla CEO Elon Musk that Lithuania ‘has plenty of skillful’ people as well as a perfect factory site.”
Musk is reported to have responded, via Twitter, “Lithuania knows the way to our heart.”
Gee, why didn’t I think of that with my GMax? I guess I just lack “optimism, freedom, defiance, and a host of other emotions.” ds
© Dennis Simanaitis, SimanaitisSays.com, 2017