Elon Musk’s Tesla briefly surpassed General Motors to become America’s most valuable car maker, eclipsing a company whose well-being was once viewed as interdependent with the nation’s.
A week after topping Ford, Tesla climbed as much as 3,7% in early Monday trading, boosting its market capitalisation to US$51bn. The company was valued at about $1,7bn more than GM as of 9.35am in New York and the two jostled for the lead spot in subsequent trading.
The turnabout shows the extent to which investors have bought into Musk’s vision that electric vehicles will eventually rule the road. While GM has beaten Tesla to market with a plug-in Chevrolet Bolt with a price and range similar to what Musk has promised for his Model 3 sedan coming later this year, the more than century-old company has failed to match the enthusiasm drummed up by its much smaller and rarely profitable US peer.
“Tesla engenders optimism, freedom, defiance and a host of other emotions that, in our view, other companies cannot replicate,” said Alexander Potter, an analyst at Piper Jaffray, who upgraded the stock on Monday after owning a Tesla for seven months and meeting with management. “As they scramble to catch up, we think Tesla’s competitors only make themselves appear more desperate.”
Tesla’s usurping of GM and Ford will undoubtedly spur debate over the relative value of Musk’s company compared to some of the world’s top-selling car makers. GM expects to earn more than $9bn this year and analysts predict Ford will generate adjusted profit of about $6,3bn. On that basis, Tesla is expected to lose more than $950m.
Assuming Tesla closes at a higher valuation than GM, it will rank the sixth-highest valued car maker by market cap, behind Toyota, Daimler, Volkswagen, BMW and Honda. While Musk, 45, has a long way to go to match Toyota’s $172bn market cap, Honda is barely ahead at about $52bn.
“The market cares more about the potential new market value of the other businesses Tesla is in than about real profits and cash flow,” said David Whiston, an analyst at Morningstar. “Right now there is nothing to slow Tesla’s momentum. They could pass Honda, too.”
Tesla has long been treated like a technology stock, with investors betting on its ability to dominate a market for electric cars and energy storage. To those same investors, GM and Ford are headed for a slowdown in car sales that will erode profits.
“Is it fair? No, it isn’t fair,” Maryann Keller, a car industry consultant in Stamford, Connecticut, said of GM ceding the market-cap crown. “Even if Tesla turns a profit, they will eventually have to make enough to justify this valuation.”
GM has fallen from grace before, of course. The Detroit-based company filed for a government-backed bankruptcy in 2009 and returned to the markets late the following year.
At the height of GM’s power in the US, former CEO Charles Wilson famously said when nominated to be then-President Dwight Eisenhower’s defence secretary: “For years I thought what was good for our country was good for General Motors, and vice versa.”
Tesla delivered fewer than 80 000 vehicles globally last year to GM’s more than 10m. Musk’s more-affordable Model 3 sedan, scheduled to roll out later this year, will be critical to his ambitions for Tesla to transform from niche car maker into a mass-market manufacturer.
The Model 3 is expected to sell for about $35 000 and boast at least 350km of battery range per charge, marks GM achieved with the Bolt that began selling in California earlier this year.
“Tesla’s products have a captivating impact on consumers and shareholders alike; this advantage will be difficult to replicate,” Potter, the Piper Jaffray analyst, wrote in a report on Monday. “Even if the Model 3 production launch goes badly, we think customers (and more importantly shareholders) will withhold judgment.” — (c) 2017 Bloomberg LP