GM takes the cake with the lowest valuation by far at just $5,354 in market value per car produced in 2012. I believe a lot of that figure can be blamed on GM’s tarnished reputation with the American public, stemming from its $49.5 billion loan from the government to help it maintain operations while it restructured under bankruptcy.
Ford Motor Company (NYSE:F) is also relatively inexpensive at just $11,433 per car. When you consider how rapidly Ford is growing in Asia — 47% unit growth through the first six months of the year — it’s not hard to see why I recently added Ford to my Basic Needs Portfolio.
The Japanese carmakers are a bit more expensive, but with notable reason. For Honda, it’s because it derives only 73% of its revenue from automobiles. Motorcycles account for 17% of sales, with other segments chipping in the other 10%, and they aren’t counted in its 2012 production figures. That has the effect of skewing its $21,871 figure a bit higher than it actually is! Toyota Motor Corporation (ADR) (NYSE:TM) is just dominant, with the company projected to earn in the forward-looking year as much as GM, Ford Motor Company (NYSE:F), and Honda, combined!
Then there’s poor old Tesla at $600,000 per car! That’s 10 times more than the Model S costs, and that’s under the assumption that every cent went to Tesla as profit and its costs were zero, which we know not to be true. Even if Tesla Motors Inc (NASDAQ:TSLA)managed to double its production by late 2014, it would only lower its market value per car to $300,000, which is close to 30 times more than Ford Motor Company (NYSE:F)!
But it gets even worse …
If that’s not enough to prove to you that Tesla’s valuation is ridiculously out of whack, then relax, because I took it another step further by examining future profit expectations in relation to 2012 production totals.
First, I multiplied each company’s projected EPS in the forward year by total shares outstanding to derive a projected profit total for the forward year. I then divided that assigned profit projection into 2012’s total production to get a sense of what investors are currently valuing the profit to be on each car made (in this case a lower figure would signify a more reasonable valuation, so don’t be confused by Tesla Motors Inc (NASDAQ:TSLA)’s higher figure). Finally, I divided that profit-per-car projection into the overall market value-per-car figure that we calculated above to obtain what I’d like to call my TMFUltraLong margin estimation, where the higher the figure, the more reasonable the valuation.
Here’s how things stacked up:
| Company | Projected Forward-Year Profit | Assigned Profit/ 2012 Production | TMFUltraLong Margin |
|---|---|---|---|
| General Motors | $5.9732 billion | $643 | 12% |
| Ford | $6.6024 billion | $1,156 | 10.1% |
| Toyota | $17.5854 billion | $1,814 | 8.6% |
| Honda | $5.4 billion | $1,721 | 7.9% |
| Tesla | $103.995 million | $4,952 | 0.8% |
Sources: Yahoo! Finance, annual reports, author’s calculations.
Somehow, investors have projected that Tesla Motors Inc (NASDAQ:TSLA) is worth nearly $5,000 in profit per car, yet they’re willing to assign a value of $600,000 per car when all is said and done. All told, that would be a TMFUltraLong margin of less than 1%!
On the other end of the spectrum is GM and Ford Motor Company (NYSE:F), with TMFUltraLong margins in excess of 10%. What this figure tells me is that investors have reasonable expectations for GM and Ford’s growth and perhaps may even be undervaluing the potential of both companies.
Expect more downside
As I mentioned, owning short-shares in Tesla certainly adds to my bias against the company, but I foresee considerable downside potential following yesterday’s downgrade by Goldman Sachs Group, Inc. (NYSE:GS). In my opinion, even placing a premium on its game-changing technology, Tesla Motors Inc (NASDAQ:TSLA) is overvalued by somewhere in the 50% to 60% range. Although I probably wouldn’t hold my short shares to those lengths, I have no intentions of cashing in this thus-far winning trade anytime soon.
The article Tesla’s Ridiculous Valuation Explained in 2 Figures originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams is short shares of Tesla Motors Inc (NASDAQ:TSLA), 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 Motor Company (NYSE:F) and Tesla Motors Inc (NASDAQ:TSLA). It also recommends General Motors Company (NYSE:GM) and Goldman Sachs Group, Inc. (NYSE:GS).
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