Building cars at scale is hard. It’s not the kind of business the market favors, but you can’t seem to convince Tesla Motors Inc (NASDAQ:TSLA) investors of that. How else can you explain the fact that TSLA, which has produced fewer than 33,000 cars so far this year is worth $32.5 billion, while General Motors Company (NYSE:GM), which made over 3 million in North America alone last year is worth just $46.4 billion?
While Tesla is selling for about eight times its 2015 sales, General Motors is selling for less than four times its annual profits. TSLA sales for 2015 came to about $4 billion.
GM’s profits in the same year were $9.6 billion. If you put $1,000 into both GM and Tesla stock a year ago, the GM shares are worth more, and paid dividends yielding over 5% at its current price.
Now I do understand … when you’re buying TSLA you’re buying vision. An electric car, fueled from a battery, which in turn is powered by a solar panel on your roof. You’re one white cat away from being a Bond villain. Since the start of 2013, Tesla shares are up over 700%, while GM is basically flat.
Then there is the promise that we can all be Bond villains, soon. Tesla CEO Elon Musk says he will build 500,000 cars in 2020, most of them being Model 3s, which sell for as little as $35,000 each.
TSLA Stock: A Best Case Scenario
So let’s assume for a moment he can do that. Sell 500,000 cars at $35,000 each and that’s $17.5 billion. That’s still less than half what GM brings in during a single quarter.
It’s not like GM, or the other undervalued car makers like Ford Motor Company (NYSE:F), or Toyota Motor Corp (ADR) (NYSE:TM), are standing still. They all make electric cars, knowing the government wants an average fleet fuel economy of 54.5 miles per gallon by 2025.
They are all working on autonomous vehicles, and have placed elements of its safety features into production. You can buy Ford right now for about 5 times earnings, and Toyota for about 10. With Ford, you’ll get a dividend yielding 5% — the same rate as GM — and with Toyota, 3.3%.
The most amazing point is that Tesla has not yet proven it can scale. This is not like assembling iPhones. TSLA’s second-quarter production was so low that Musk let his top production people go and brought in a veteran of Audi. Musk himself has a desk at the end of his production line and a sleeping bag handy to rest in.
But here’s what investors need to know.
Let’s assume that Musk is right, that he can scale production as he says, and that Tesla becomes capable of making even 1 million self-driving electric cars in 2020, with Powerwall batteries to charge them and solar panels from SolarCity Corp (NASDAQ:SCTY) (which Tesla is acquiring) to power them.
What is TSLA stock worth when it grows up? Because the market says GM is worth four times earnings, and Tesla has yet to earn a dime.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As this was written he owned no shares in companies mentioned here.
