Great men play by their own rules. This was certainly true of inventor Nikola Tesla.
It’s also true of Elon Musk, CEO of Tesla (NASDAQ:TSLA), which was named for the inventor. Musk’s decision to reopen the company’s plant in Alameda, defying a government order, led one politician to tweet a four-letter word at him.
But Musk has delivered for holders of TSLA stock. Proof came in the form of a $16 million profit for the March quarter, on revenue of almost $6 billion. Tesla opened for trade May 15 at $803 per share, a market capitalization of nearly $149 billion.
By way of comparison, General Motors (NYSE:GM), Ford (NYSE:F) and Fiat Chrysler (NYSE:FCAU) are worth a combined $66 billion.
Investors Must Trust Elon Musk
Even Musk isn’t predicting the good times will keep rolling. During the quarter Tesla suspended operations in both Alameda and Shanghai due to the novel coronavirus. It was Musk’s desire to open the California factory that caused the latest rupture with authority.
Musk used California expertise and tax incentives to make his company one that could dominate car-making for years to come. But he is supremely unappreciative. He has violated labor laws to maintain full control of his workforce. Now that Tesla’s growing stage is done, he wants to move it to Texas, which wants him there desperately.
While other car makers are hitting the brakes, Musk is mashing the accelerator. He has cut prices in China so buyers can qualify for government subsidies. He has also gotten a $565 million loan of working capital for the Shanghai factory.
Critics say Tesla has made huge strides in the quality of its cars. The new Model Y SUV is much better than the old Model 3.
Mainly, Musk has proven his point, that electric cars can be cheaper to build and own than those with gasoline engines. In the process, he has come to dominate the electric car supply chain. This makes it hard for other makers to compete. Tesla is now building a similar battery supply chain in China.
The Chinese batteries could run 1 million miles before being replaced. The new battery could reduce the cost per kilowatt hour of running a Tesla to less than $100. It could also mean electric cars that cost no more than gas-powered cars.
TSLA Stock Is Still Expensive
Still, TSLA stock is pricey.
Shares sell for nearly 6 times revenue, while GM sells for about three months of revenue. Tesla’s profit is negligible, while GM’s was over $6.5 billion last year.
Tesla, in short, is being valued as a tech company, and not self-driving technology. Instead it is valued for its battery and manufacturing expertise.
The only comparable valuation to Tesla is the $105 billion that Morgan Stanley gave Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Waymo unit last year. Even that may be a chimera. The autonomous car unit recently raised venture capital at a valuation closer to $30 billion.
Detroit and Silicon Valley danced around each other for years, arguing about whether the value in autonomy lay in the car or the computers. It turns out they were both wrong.
The Bottom Line on Tesla
Forbes now estimates Musk’s personal fortune at almost $36 billion, which includes his space launch company SpaceX. The next time astronauts blast off for the International Space Station it will be on a SpaceX rocket, to which they will be driven in a Tesla.
That’s what we call a halo effect. It shines on every great company at one time or another. It’s a systematic overvaluation, and it’s fleeting. It goes away.
At its present valuation, TSLA stock is purely a speculation. If you got in early, take some profits and let the rest ride, because I’ve been wrong on Tesla before.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
