Tesla-1, Everybody Else- 0 ?
Tesla made headlines this June by beating Toyota to claim the top spot of the most valuable car maker in the world. Its share price has risen by a whopping 950% in the past 12 months, making its value 17 times its revenue. For perspective, Toyota’s value is just 0.6 times its revenue.
But is this the right metric of comparison? And what does this mean for the auto-industry? Let’s discuss!
The Tesla Strategy
1. Building Innovation Capital:
Grab eyeballs, build stakeholder support for ideas. Eg. Cybertruck.
2. Market entry:
Start by entering EV’s premium segment, raise money, and then enter the affordable. EV market — Model 3.
3. Be a Tech Company:
More software in their architecture than any other gas powered vehicle.
4. The Gigafactory:
Reduce battery cost, through scale.
But…?
In the years 2016–17, Tesla managed to sell its ideas to the public and make them believe in the lofty promises, but they couldn’t meet production targets because of a plethora of manufacturing issues, post the launch of the Model-3. To the point where investors were shorting* and calling Musk a fraud and “a CEO with a questionable relationship with the truth”.
*Shorting: when you make money by betting against a company- eg, sell a stock at $100 and buy it back at $80, earning $20.
By turning things around, Elon Musk managed to get quarterly profits in 2018, creating a cult status around the company. His (controversial) personality of course has made him a media darling and his eye catching ventures/ideas like SpaceX, the Boring Company and Tesla’s Cyberstruck have added fuel to his innovation capital.
Tesla’s valuation is still difficult to justify and can’t be a result of profits in a few quarters. But it increasingly seems like a result of people betting on Musk than on the company itself, with a spillover of SpaceX’s recent success too.
So has Tesla won the mobility race?
Well, it’s complicated. Let’s look at other metrics:
Source: Visual Capitalist
Tesla is 19th on the list of Revenue per Second. Tesla has never clocked an annual profit and is currently at an annual loss of $862 Mn.
Zero to One
The above data points obviously don’t look flattering for Tesla, but one might say that Tesla is still in its expansion stage where it’s draining money to establish itself in the mobility sector.
By valuation, of course it’s ruling the roost currently but it’s not a fair comparison to make considering the legacy, profitability and revenue of the others. Most of them have dominated through at least half of the previous century and moreover, EVs aren’t something new either, having in fact predated gas powered vehicles in the late 1800s!
Is Tesla a major threat?
It would actually be wiser to consider Silicon Valley as a threat to the existing players in a highly likely driverless, emission free future. Tesla of course is leading the charge but Uber and Google also have an upper hand over the incumbents in this regard. While Tesla claims superior tech but is struggling with mass manufacturing capability, its vice-versa for the likes of GM, Volkswagen and Toyota.
There’s ample time in this sector to see who comes out as an eventual victor, but it’s pretty clear that Musk is determined to write mobility’s 21st century script.
