I dont have the exact numbers, but I read that
VW sold about 12 million cars last year,
Mercedes over 2 million,
Tesla less than 1 million.
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How can there be suge a huge difference in the worth of these companies?
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The answer that I learned a long time ago in grad school is that the price of the stock is the present value of all future earnings. That being said, I do not believe that that statement is accurate when applied to Tesla.
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That depends how you count. The total value is often just the sum of all stocks (the market capitalization). Other parts of the company that aren’t publicly traded aren’t included in that value.
Also that value mostly regards future expectations and not the current value. People buy tesla stocks because they believe it will grow in value, not because they think the total company is worth a certain amount.
Tesla is “emotional” stock, people buy it not because of fundaments but because they love the CEO or the whole narrative about company.
Also – it’s not only about cars, tesla sells solar panels, energy storage and most important part is AI for selfdriving (that doesnt function properly as of now, but many people believe it soon will)
The stock value is not based on the current sales rates but rather on the expected future profits. And investors argue that Tesla have invested in an infrastructure and product that will give higher profits in the future. For example Tesla have spent a lot of development time making more automated factories which reduces operating costs while traditional manufacturers are still largely basing their manufacturing of human labor, they have automated a lot of the simpler things to automate but the last 10% that humans do is the toughest and will require huge investments in new technology or even full redesigns of their factories. Tesla is also a very prestigious brand and have a lot of lock in features which means that their customers pay more for less which again gives more profit. Most traditional car manufacturers are also scrambling to develop EV cars which means they tend to rush the decisions and have to rely on outside vendors who may be able to charge whatever they want, which reduces the profits. Tesla on the other hand have a policy of outsourcing as little as possible and only buy commodities. That have delayed their efforts a lot but means they have control of all the profits.
A lot of good answers here on the difference between value stocks (priced at current value) and growth stocks (priced based on speculative/perceived value.)
One more thing to add. There are cycles in the economy; ups and downs. We go through periods of time where assets generally increase in value and visa versa. At the end of a cycle before assets go down, there is rampant speculation. In the late 90s, it was the dot come bust. In 2008, it was sub prime mortgages. In early 2021, tech stocks, crypto, some metro housing markets, etc. had rampant speculation because “safe” investments have no return.
In essence, too many people invest for limitless growth rather than preservation of wealth. Low interest rates had a role in this of course.
Companies are priced on expectation of future earnings. So people are expecting Tesla will sell more cars in the future than these other companies.
People price stocks not just by looking at where the company is today but where they think it’ll be 1/3/5/10 years from now. While Tesla does ship fewer cars than the other manufacturers you mentioned right now, they are growing that number very rapidly, and people anticipate that in an all-electric future they will have enough of a lead that competitors will not be able to catch up.
i work in the auto industry, maybe this will help break it down. Most OEM’s have input in design and suppliers but they really only do the final assembly. Most parts are created by outside companies (IE: dashboards, doorpanels, doors, seats, windshields etc) When Musk was putting together Tesla, he couldn’t find suppliers that were up to his standard so he pulled a lot of that design and fabrication in house. Thus, his costs are probably a lot less then other OEMs and they make more per vehicle sold, not to mention the design and manufacturing equipment in house is part of the value.
Eli5:
You have a sports card of an athlete who is very good after a few years.
The value of the card is 10 dollar but every year, the value goes up because more people know the player.
So next year, they predict he is that good so the value will go to 15 dollars. In the mean time, the player has been in movies and TV shows that were very popular so now everyone see him as cool but also as a hollywood star, so even if as a player, he should be worth 15, way too many people just want to have his card to say they have it, others like to take this into account and think the value could tripple so they also want the card. By the time next year hits, it is worth 30$ and the value is still expected to rise. Even if player doing what he does are valued at 15$..
Rince and repeat.
Tesla is making strides and gaining value but all the stunts Elon Musk is pulling and the fact is it branded as the first to mainstream full electric cars with autopilots and as a status symbol makes it so those who can’t afford a Tesla will buy shares just to say they have something Tesla and others see it as going to the moon(basically a runaway stock who will still make money for one more year.. every year).
That value is a mix of speculation and status at this point.
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