Tesla is worth more than Ford: how does that work?
On Monday, the stock valuation of Tesla, a company founded in 2003 with about 30,000 employees and sales in 2016 of $7 billion dollars, surpassed that of Ford, founded exactly one hundred years before, with 201,000 employees and sales in 2016 of $151.8 billion dollars: $47 billion versus $45 billion. The tweet of its founder, Elon Musk, says it all: bad luck for those who bet short on the company.
The increase in the value of Tesla’s shares has its origin in the progressive increase of the company’s production figures, which was the biggest unknown: it’s one thing to design revolutionary vehicles, even to categorically position them as the best performers or the safest, but it is something else to be able to manufacture them en masse and meet global demand. Last quarter, Tesla manufactured and delivered 25,000 vehicles, and its capacity continues to increase at a good pace, clearly positioning itself in the belief that the Model 3, its first vehicle and still very much in the higher range at $30,000 will reach a wider market.
The market is the market, and Tesla’s continued popularity on the stock exchange will depend on many factors. But it is still worth asking why Tesla’s share price has surpasse that of a brand like Ford. In the first place, the analysts are looking to future sales as opposed to current results. Ford sold 237,000 vehicles in March alone, although that was a 5% drop on expected sales. Ford’s profits, which fell by 7.2% year-on-year, were $4.1 billion, while Tesla’s was $667 million… in the red.
What are the analysts telling us? Basically, that traditional automotive companies are boring, easy to predict and falling in value, while Tesla has huge potential for very fast growth. Tesla’s initiatives, such as building a mega-factory or investing in battery technology, put it way ahead of what the traditional automotive companies are doing. This is disruption on a scale rarely seen in an industry.
In many ways, Tesla has already won the fight with its competitors in the automotive industry: it has forced the traditional companies to invest in a technology they did not want to and for which they still show little enthusiasm: the electric vehicle; it has also forced them to keep up in the field of autonomous driving if they don’t want to see their share price fall even faster, and has proved that self-driving cars save lives. The environment and safety, two factors difficult to ignore not only in the context of profits, but also the social responsibility of companies, even if we are talking about an industry in which the company that most openly violated pollution regulations is today the world’s top brand. But Elon Musk, with his aggressiveness and charismatic style, has achieved for the moment much more than any Google still considered to be from another planet in an industry that has never shown any ability to bring about change.
Autonomous and electric vehicles will bring about many changes. And in the face of these changes, Tesla shows a lot more capacity to deal with and manage them, largely because it has played a key role in their development, than traditional companies like Ford, even if it is, at least in theory, among the manufacturers better prepared for the development of the autonomous vehicle. The speed of movement and the ability to generate change is much greater in a company focused toward a clear direction than that of a giant suffering from multiple personality disorder, that keeps coming up with huge vehicles that consume half an oil well, while keeping its autonomous or electric vehicles pretty much hidden away in the motor shows.
That is what the markets see when they send Tesla’s share price skywards. Today’s figures are just that, today’s figures. If you still don’t can’t see that the automotive sector is a about to change lane suddenly, don’t worry, just take the analysts’ word for it.
(En español, aquí)