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Is Tesla really worth more than Ford and General Motors?

Last week, Tesla, the company best known for its electric cars, saw its stock valuation jump – leaving this 15 year old company, headed by the tycoon and futurist Elon Musk, valued at more than $49billion. By comparison, industry stalwarts Ford and General Motors saw their valuations take a tumble. Ford, which sells 6.6mn cars a year compared to Tesla’s 76,000, saw its valuation slump to $46bn.

Whether, as we go to press, this remains the case is unclear, but it does raise some interesting questions about how businesses, especially technology companies, are valued.

Investors have always been more interested in what is expected to happen than in what is happening in the here and now.

In fact, Tesla’s upcoming Model 3 electric vehicle could super-charge its share price even further and its success could help to propel the company into the motoring mainstream.

Tesla has said it has received around 370,000 pre-orders for the Model 3 and Musk has talked of producing 500,000 vehicles in 2018, topping a million by 2020.

So, does Tesla’s share reflect reality or is its valuation just another example of ‘over exuberance’ in the stock market?

Investors seem to believe it represents the future and, as such, is a standard-bearer for a battery-powered future. While the company may be making a loss, sales are up 70% and the number of vehicles sold is growing.

There is certainly going to be a continued push into greener cars and Tesla is heavily involved in the development of driverless vehicles.

Musk tweeted that while Tesla was certainly overvalued “if based on the past,” that was “irrelevant”. He continued, “A stock price represents risk-adjusted future cash flows.”

But could Tesla be skating on thin ice? A lot depends on whether the Model 3 is a success and the company’s long term future will depend on it selling in sufficient numbers, helping the business to turn a profit.

That will be when bold ambition and saying the things investors like to hear will come up against the cold reality of the marketplace – and how many technology companies have been there before and been found wanting?

Author
Neil Tyler

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