Simanaitis Says
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MAKE LITHUANIA GREAT (YET AGAIN)
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.
Image from adage.com.
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.
SpaceX has demonstrated the reusable rocket booster, a major achievement. Image from wired.com.
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.
Tesla Model 3.
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.
Chevrolet Bolt EV.
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.”
A screen grab, taken by Darius Kniuksta, shows a virtual Tesla Lithuania facility devised in the Minecraft video game. Image from bigstory.ap.org.
“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
Simanaitis Says 
And where does common sense fit in? But what do I know; I drive a Morgan.
Some perspective on personal mobility from The Lititz Record, April 9, 1897:
“There is no abatement in the bicycle rage as some have predicted. Every year finds a greater demand for the wheel, which if kept up for a few years longer will fine nearly every able-bodied youth and man, besides many women, in possession of one of these convenient conveyances.
The bicycle, however, has wrought injury to the carriage trade, and manufacturers of horse vehicles no doubt feel it all over the country.”
A lot of the market cap also comes from realities of the future. After 2030, all new cars in Germany must be electric. Austria is looking at the same. Norway plans to phase out fossil fuel cars by 2025. The US is lacking, but in the EU electric cars are getting more and more common. Even the very expensive Tesla Model S. And…according to Fortune magazine, reservations for the Model 3 had already reached 400,000 one year ago!
http://fortune.com/2016/04/15/tesla-model-3-reservations-400000/
Normal carmakers are ‘value’ propositions: they make money, pay dividends, and even with a growing number of robots they employ a lot of people. Tesla, at best, fits a ‘growth’ definition – expected to make money someday, dividends optional, can always unload it for more than you paid for it as long as the pyramid keeps growing. Musk is reputed to have responded to those asking for a couple of ‘independent’ directors on the Board with a “so buy Ford” comment, referring to the fact that Ford, though public, is controlled by the Ford family.
Can’t really call them vaporware any more; they have built some cars and might build more. But with a valuation that’s based almost entirely on ‘good will’ and speculation one must wonder how long this can keep up.
Old one: what’s the best way to make a small fortune in the stock market? Start with a big one!