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Mark Yu
Mark Yu
Articles (435)  | Author's Website |

Tesla Still Amazes Nonbelievers

Why is a car manufacturer getting a highly absurd valuation?

Tesla Inc. (NASDAQ:TSLA) dethroned Toyota (NYSE:TM) as the most valuable car company in the world this past week. Shares of the Palo Alto, California-based carmaker have almost doubled so far this year despite the ongoing pandemic, while its peers stumbled and had to cut their dividends to preserve cash flow. Is it still justifiable to value Tesla as a car manufacturer at this point?

On Thursday, Tesla registered a market capitalization of $224 billion, while Japan's Toyota ended up with $204 billion. On the other hand, Detroit-based auto manufacturers Ford (NYSE:F) and General Motors (NYSE:GM) together were valued at $60 billion—not even a third of Tesla’s gigantic valuation.

Tesla’s stock has more than doubled from the pandemic-led bottom in March despite messing up some of its cars’ paint jobs and other quality issues. The incredible stock price appreciation appears to be endless. For example, the typical employee memo from Elon Musk indicating the possibility of breaking even this quarter and the delivery estimates beat helped Tesla gain an additional $46 billion in market capitalization over the course of one week—exactly twice the total value of 117-year-old Ford.

At its current valuation, Tesla has a forward price-earnings ratio of 106, a price-sales ratio of 9 and price-book ratio of 24. In comparison, Toyota Motor has a forward price-earnings ratio of 11, a price-sales ratio of 0.74 and a price-book ratio of 0.94.

In addition, this quarter will be another historical record for the company should it break even as this will be the first time Tesla will have recorded four consecutive quarters of being in the black amidst an ongoing pandemic.

More over, Tesla has promising growth in China. The automaker delivered nearly 16% in revenue growth there in the first quarter amidst the fierce lockdowns in the country. Also, China recorded a return to month-over-month vehicle sales increase in May, which may indicate further demand for Tesla Model 3s.

Tesla shorts have time and time again been squeezed to the point of extreme pain as the stock continues to climb higher. Now at record all-time highs and ultimately high-flying off-the-chart valuations, the once nearly bankrupted company is obviously part of the auto manufacturing industry. But Tesla can also be benefiting indirectly with its advanced technology development toward autonomous driving. It may be the case that Tesla has more upside still as what could be considered its peers—such as Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT)—are nowhere close to generating any profits, but trades at three times their sales on average.

As short sellers capitulate, there seems to be nothing at this time that can halt Tesla’s steady rise.

Disclosure: No positions in any of the companies mentioned.

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About the author:

Mark Yu
I'm a doctor in physical therapy (DPT) with an interest in finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

I attempt to dissect one company filing every day. I dislike goodwill and intangible assets.

One company (review) a day keeps the speculation (hopefully) away.

"The only source of knowledge is experience."

"I have no special talent. I am only passionately curious." - Albert Einstein

"To strive, to seek, to find, and not to yield." - Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." - Warren Buffett

Visit Mark Yu's Website


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