Lex COMMENT
Tesla's US$500-plus share price looks like an Elon Musk fever dream. Since the low point last summer, the company's market value has nearly tripled. Not only is Musk's net worth up several billion dollars but short sellers, the chief executive's nemeses, are sitting on vast mark-to-market losses. Some analyst price targets for Tesla stock have now touched US$600.
READ MORE:
• Tesla now nearly worth more than Ford and General Motors combined
This would make more sense if the promised high-margin business of running a fleet of autonomous vehicles had pulled up in the corporate parking lot. Tesla's gains have been more quotidian. Instead of proving robo-taxis are viable it overcame the most pressing problems in the core electric vehicle business.
Last year Tesla was in poor shape. Incentives for electric vehicle purchases were disappearing and executives were jumping ship. In a bid to stop capital spending overwhelming the money coming in employees were laid off and costs cut.
Incentives are still depleted. But deliveries of the breadwinner Model 3 rose to nearly 301,000 in 2019 from 146,000 the previous year, proving demand for the battery-operated cars (albeit at reduced prices). A new Chinese factory began production, suggesting the possibility of rapid international distribution. And Tesla turned cash flow positive, reporting US$371 million in the last quarter.
Now that the share price has picked up the company's cost cutting in pursuit of positive cash flow may well be abandoned. Regardless, it's gains are those of a car company not a fantastical robot AV maker. Yet Tesla's enterprise value is 48 times its ebitda. Luxury carmaker BMW's is 5 times according to Bloomberg. If Tesla shares traded on the same sales multiple as BMW's they would be worth around US$60 each.
Then again rival car companies lack Tesla's ambition and range of electric vehicles. Model Y production is expected this year. Hulking Cybertruck pickups next year. Earlier this week Musk claimed his cars will soon talk to pedestrians minding their own business on the side of the road. Other car makers have conspicuously failed to come up with anything remotely competitive. The stock is expensive but a bet on Tesla is still the best way to make a bet on a future of electric cars.
Lex is a premium daily commentary service from the Financial Times
© Financial Times