As I’ve noted previously, the smallest valuation on a production basis is still given to General Motors Company (NYSE:GM) – and with good reason. GM is still attempting to recover from the negative PR associated with its bankruptcy filing in June 2009. In addition, at least domestically, GM has been kicked around by Ford Motor Company (NYSE:F) which redesigned its entire line of trucks and introduced a newer, more fuel-efficient engine known as the EcoBoost which gets better gas mileage but doesn’t sacrifice horsepower. Perhaps General Motors Company (NYSE:GM)’s Sierra and Silverado redesign will reinvigorate its truck sales in 2014, but for now the U.S. truck market remains Ford’s to lose.
Honda Motor Co Ltd (ADR) (NYSE:HMC) and Toyota Motor Corporation (ADR) (NYSE:TM) are both priced a bit higher on a value per car basis, but they, too, have a good reason. Honda Motor, for example, sells motorcycles, lawnmowers, and other equipment which accounts for 27% of its revenue. Factoring in the 73% of Honda’s revenue that it does generate from auto sales brings its valuation considerably closer to that of Ford Motor Company (NYSE:F)’s. Similarly, Toyota commands its premium valuation because, frankly, it’s more profitable than the other carmakers combined based on forward profit projections.
And then there’s Tesla whose valuation is nearing… get this… $1 million per car! Keep in mind that a base Model S runs about $60,000, yet investors are willing to place a current valuation on Tesla of practically $1 million per vehicle!
A disruptor? More like a mosquito…
Is Tesla really disrupting the market? If you looked at August’s U.S. auto sales figures the answer would be a resounding “No!” U.S. auto sales, thanks to preferential lease rates, zoomed higher by their largest rate in six years, with General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) seeing unit sales rise by 15% and 12%, respectively, while Honda and Toyota turned in even more impressive U.S. unit sales gains for the month of 27% and 23%.
Source: Steve Jurvetson, Wikimedia Commons.
Tesla’s not having a huge effect on traditional automakers because it’s not a big enough threat yet to be one. Put simply, you can’t waltz into a dealership and simply test drive a Tesla Model S. Since production began on the Model S a year ago, Tesla has delivered approximately 12,750 vehicles. Prior to this, Tesla had sold just a tad more than 2,400 Roadster’s worldwide between 2008 and 2012. Add that up and Tesla, since its founding in 2003, has put just a tad more than 15,000 cars on the road. To put this in some perspective, Toyota sold more than 26,500 cars per day last year! Is the enormity of Tesla’s valuation beginning to sink in yet? Nearly $21 billion in value for a company that hasn’t even matched Toyota’s daily production rate despite being given 10 years to do so?
What’s more is that even Musk understands that Tesla’s greatest risk is in expanding its production. In fact, Musk’s exact words in the interview with CNBC are: “Our big issue is raising production.” Even if Tesla is successful in expanding to 40,000 vehicles next year and 100,000 by 2016, that still translates to more than $206,000 per car; or, in other words, more than three times the price of the Model S and about 14 times the profit expectation of each car assuming a 25% gross margin. The numbers just don’t make any sense.
I still stand firm on my short position of Tesla Motors and, as I have stated in previous months, will look to add to that position.
The article Tesla Investors Are Crazier Than Elon Musk originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams is short shares of Tesla Motors, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, Ford and Tesla Motors. It also recommends General Motors.
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