So, I understand that Tesla is a company that has a possibility of shaping personal transportation in the future, but how can people think it is worth the insane amount it is currently valued at? They do not have much in the way of production facilities compared to established automakers, their competition is advancing rapidly and their market share is decreasing. I’m just baffled by their valuation as a company.
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What are the odds of that possibility of shaping personal transportation? Let’s just make up a number and say 10%. What would their valuation be if they actually became that dominant? If people think it’s $10 T, then you can see how a 10% chance at $10T is worth $1T (ignoring it’s possible values if it doesn’t become that big for now). That’s all it really is. Certain people have high opinions on either that percentage chance or that future evaluation, and believe owning it now is worth the risk that they never become that big.
Electric and Automated Vehicles are the future of personal transportation. Elon has always been a futurist. People know this so they invest in whatever practical he’s touching so they can make a profit. That said the Trillion dollar valuation is bloated, Elon even agrees with that.
Valuations are based on expectations of future profits. People think they could grow into an auto giant — the GM or Ford of electric vehicles. And they control so much battery manufacturing capacity, they can also make money selling batteries to other electric car makers. But they also have some major business benefits compared to legacy car makers, like not having hundreds of thousands of retired workers’ pensions to pay, direct sales model means bypassing dealers’ share of sales revenue. That all means even when selling fewer cars, they might make more profits than carmakers with more sales.
The value of the stock isn’t the same thing as the value of the company. The value of the stock is about how in demand the stock is, which represent more the confidence of investor than anything else.
For example, GM asset value is 235 billions and their revenue is 122 billions, but the value of their stock is only 90 billions. And it’s not because their stock is not well valued. The value of their stock almost doubled in the last 5 years or so. But GM is not really involved that much in other industry than cars, which limit their potential growth. It’s not necessarily bad, but it’s a well known industry with a lot of well established competition and very little chance of dominating the market.
Tesla is actually smaller than GM with asset value of 52 billions and a revenue of 3 billions, bu the value of their stock is 1 trillion. Tesla isn’t just a car manufacturer like GM, they are also involved in high technology like software, batteries, space technologies, communication, etc. They are innovating in different field that attract the attention and with big hope of growth.
The stock value is in part a big popularity contest and tesla is shiny and hopeful, so people buy their stock. It’s a gamble for sure, maybe it’s gonna pay out, maybe not. Nobody can know for sure. But nobody is saying that currently Tesla is worth 1 trillion, it’s just the value of their stock and that’s an important difference.
Stock prices are a lot like collectible toys. If people will pay a lot for them, then they are worth a lot. But it’s not necessarily because they have some kind of real inherent value, in and of themselves.
People buy Tesla stock because they feel that the stock value will go up, and they will be able to sell the stock at a profit. And that raises the demand for Tesla stock, which raises the value of it. But that doesn’t mean that all of the actual assets and holdings of Tesla are actually worth that much money or that Tesla is going to just become more and more valuable. After all, GM stock used to be very valuable and desirable, and then GM ended up going bankrupt.
The simple answer is that there are about 1 billion shares of stock in the company and each share costs a little over $1000 each, why is a single share $1000, I don’t know.
I don’t know enough about the stock market to know what factors drive a stock price to it’s value.
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