When investors are looking for a Tesla Motors Inc (NASDAQ:TSLA) comparison, the first place they tend to look is to the automotive industry where Tesla intends to make its money. The fundamental problem with this approach is that the automotive industry is made up of large established players that dwarf Tesla’s production capabilities and are dwarfed by Tesla in growth potential. Comparing Tesla Motors Inc (NASDAQ:TSLA) to two frequent automotive comparisons results in the table below.
| Automaker | P/E ratio | EPS | Market Cap | Dividend |
| Tesla Motors | N/A | ($2.84) | $10.9B | No dividend |
| Tesla Motors Inc (NASDAQ:TSLA) | 10.7 | $1.48 | $62.3B | 2.55% |
| General Motors Company (NYSE:GM) | 11.8 | $2.90 | $47.0B | No dividend |
Looking at this table without appropriate context would make Tesla look like a disaster of a company. But, Tesla is aiming to increase its production capacity by at least ten times over the next several years as it introduces new models and grows a larger customer base. But a ten fold increase in production capacity at GM or Ford is not in the works, and certainly not within the next decade.
Both GM and Ford have solid earnings, an established automotive presence, and a large production capacity. These industry characteristics, combined with Ford’s payment of a dividend, set these two automakers up as the Pfizer in the Sangamo-Pfizer comparison. By contrast, Tesla’s growth potential, small market cap, and lack of industry wide presence earn it the position of Sangamo in this biotech comparison.
Same industry, different companies
High growth and established players are seen across most industries. Companies like Tesla and Sangamo occupy a high growth, higher risk spot, where earnings are currently small but could multiply many times over if the core product(s) are successful. A widespread adoption of Tesla’s electric vehicles or Sangamo’s gene therapy techniques could turn the companies into multi-bagger investments. Conversely, a failure of acceptance for either posses a strong financial risk to both companies.
On the established side, GM, Ford, and Pfizer all have the opportunity to grow, but the potential for growth is not the same as with smaller players. GM and Ford would benefit from a rebound in auto sales connected to an improving economy and emerging markets growth, while Pfizer could benefit from new innovations developed through in-house research or through acquisitions of small biotech companies that possess their own innovations. In the end, any of the companies mentioned in this article could prove to be worthwhile investments but comparing them with each other is largely irrelevant due to the fundamental differences between them.
Alexander MacLennan owns shares of Tesla Motors and Sangamo Biosciences. The Motley Fool recommends Ford, General Motors, and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors.
The article The Never Ending Comparison originally appeared on Fool.com.
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