a. General Motors

b. Ford

c. Tesla

Answer: c. Tesla

From Reuters:

For the first time in the era of the modern automobile, the most valuable U.S. car maker is not based in Detroit. Silicon Valley’s Tesla Inc (TSLA.O) overtook General Motors (GM.N) on Monday to become the U.S. car maker with the largest market capitalization as the century-old automobile industry increases its reliance on software and cutting-edge energy technology.

I was wondering what the value of Tesla was per car manufactured in comparison to GM and the article delivered:

Tesla’s market capitalization is now equivalent to $102,000 for every car it plans to make in 2018, or $667,000 per car sold last year. By comparison, GM’s market capitalization is equivalent to $5,000 per car it sold in 2016.

The Palo Alto, California company is rushing to launch its mass-market Model 3 sedan in the second half of 2017 and quickly ramp up its factory to reach a production target of 500,000 cars per year in 2018. Last year it sold 76,230, missing its target of at least 80,000 vehicles. By comparison, GM sold 10 million cars and Ford sold 6.7 million.

So, simple math says that Tesla’s value per car sold is about 20X GM based on cars they PLAN to make in 2018. What explains this difference in valuation? Here’s one analyst’s take:

“Tesla isn’t just another company. More so than any stock we’ve covered, Tesla engenders optimism, freedom, defiance, and a host of other emotions that, in our view, other companies cannot replicate,” Potter wrote in a report.

How might you use this current event for your investing or entrepreneurship class?

• What metric is used to value companies like Tesla and General Motors?
• What are the reasons that investors are paying a much higher premium for Tesla vs. General Motors?
• What industries is Tesla and its founder Elon Musk looking to disrupt? Do you think this explains some of the difference in valuation?
• Compare the stock charts for Tesla and General Motors for last five years. What do you notice? Here’s the chart from Yahoo Finance.
• Would you invest in Tesla today? Why or why not?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.