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m_d_hGeneral Motors (GM), the venerable and perhaps best known manufacturing company in the US, which went bankrupt during the Great Recession but rose from the dead via an Obama Administration bailout:
Market Capitalization: $73 billion
Revenues: $116 billion
Net Profits: $3.4 billion
Price/Earnings Ratio: 23
Tesla, the brash newcomer, specializing in electric cars, electric car batteries, and solar panels:
Market Capitalization: $792 billion
Revenues: $28 billion
Net Profits: $0.5 billion
Price/Earnings Ratio: 1600
So, Tesla sells fewer cars than GM, makes far less money than GM, but is valued by the stock market at 10x GM?
Why? Because of the dream that soon everybody will buy electric cars, and that for some reason they'll all buy them from Tesla. Even though other companies make electric cars also -- less expensive electric cars.
GM's executives look at this wild stock market disparity, feel ashamed of the value of their executive stock options in comparison, and decide -- hey, let's rebrand ourselves as an electric car company! Let's announce that 15 years from now we will become a pure electric car play. Maybe then the stock market will value us at 1600x our earnings also! That would make us worth $5 trillion!!! Way more than Apple and Amazon combined! We'd rule the world!!!!
If only everybody would view us as an electric car company too. Pretty please?
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It's like the late 1990s when companies thought slapping ".com" on the end of their names would bring them untold riches. The Internet, the Internet! Everything will be sold on the Internet! You don't need a storefront, just a website. Pets.com!
I have friends who bought Pets.com stock back in the day. Its stock price declined 98% before it filed for bankruptcy. It turned out you could buy dog food elsewhere on the Internet, at lower prices, with better customer service.
If we really do all switch to electric cars in the future, we will have plenty of manufacturers to choose from. There's no reason to think Tesla will be everybody's first choice. Cars are commodities, people shop around, they price compare, they keep driving that old clunker until they find a good deal. There's no reason to think Tesla will be everybody's first choice.
But so long as Tesla is hugely overvalued by the stock market, other companies will be tempted to make themselves into Tesla Too, so their executive stock options can be more "appropriately" valued by the stock market.
Market Capitalization: $73 billion
Revenues: $116 billion
Net Profits: $3.4 billion
Price/Earnings Ratio: 23
Tesla, the brash newcomer, specializing in electric cars, electric car batteries, and solar panels:
Market Capitalization: $792 billion
Revenues: $28 billion
Net Profits: $0.5 billion
Price/Earnings Ratio: 1600
So, Tesla sells fewer cars than GM, makes far less money than GM, but is valued by the stock market at 10x GM?
Why? Because of the dream that soon everybody will buy electric cars, and that for some reason they'll all buy them from Tesla. Even though other companies make electric cars also -- less expensive electric cars.
GM's executives look at this wild stock market disparity, feel ashamed of the value of their executive stock options in comparison, and decide -- hey, let's rebrand ourselves as an electric car company! Let's announce that 15 years from now we will become a pure electric car play. Maybe then the stock market will value us at 1600x our earnings also! That would make us worth $5 trillion!!! Way more than Apple and Amazon combined! We'd rule the world!!!!
If only everybody would view us as an electric car company too. Pretty please?
-----
It's like the late 1990s when companies thought slapping ".com" on the end of their names would bring them untold riches. The Internet, the Internet! Everything will be sold on the Internet! You don't need a storefront, just a website. Pets.com!
I have friends who bought Pets.com stock back in the day. Its stock price declined 98% before it filed for bankruptcy. It turned out you could buy dog food elsewhere on the Internet, at lower prices, with better customer service.
If we really do all switch to electric cars in the future, we will have plenty of manufacturers to choose from. There's no reason to think Tesla will be everybody's first choice. Cars are commodities, people shop around, they price compare, they keep driving that old clunker until they find a good deal. There's no reason to think Tesla will be everybody's first choice.
But so long as Tesla is hugely overvalued by the stock market, other companies will be tempted to make themselves into Tesla Too, so their executive stock options can be more "appropriately" valued by the stock market.