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A Tesla car is seen at the V3 supercharger equipment during the presentation of the new charge system in the EUREF campus in Berlin, Germany, Sept. 10, 2020.MICHELE TANTUSSI/Reuters

At some point, Elon Musk will hop into one of his SpaceX rockets and set up shop on Mars. His goal is to colonize the red planet as well as fill every road and highway on Earth with his electric Tesla cars, for he is a man with galaxy-sized ambitions.

No doubt he will leave an enormous statue of himself behind so that any investor in the distant future who misses his glorious presence can kneel before it, kissing the bronze feet of the dope-smoking executive who turned a low-volume maker of money-losing cars into a company worth more than all its competitors combined.

Well, he did for a few moments. The question is whether those moments will return, given Tesla’s outlandish, gravity-defying valuation. This week, Tesla shares finally cracked after one of the most stupendous rallies ever seen in the tech sector. On Tuesday alone the shares lost 21 per cent, wiping US$80-billion off the valuation of the company, equivalent to the combined value of General Motors Co. and Ford Motor Co.. The tumble came after the company announced it would sell US$5-billion in new shares and learned that it hadn’t made the cut for the S&P 500 Index.

Tesla Inc. shares peaked at US$502 on Sept. 1, propelled in part by the frenzied buying of Japan’s SoftBank Group Corp. Since then, they are down by a quarter. Still, they are up 635 per cent in the past year, and the company was worth US$346-billion on Friday. The closest rival was Toyota Motor Corp., at about US$210-billion. Toyota, the world’s most efficient automaker, sold 10.7 million vehicles last year; Tesla sold 367,500.

By any measure, Tesla’s valuation makes zero sense. Divide the company’s market value by the number of cars produced last year and each Tesla car’s worth comes out to more than US$940,000. Not bad for a product whose average selling price is US$57,000. The equivalent measure at GM, which sold 7.7 million cars last year, suggests investors put a value of just US$5,000 on each of its vehicles. Okay, it’s a silly measure in many respects, as it doesn’t account for cash on the books or assets. But it does give you an idea of Tesla’s inflated value.

No wonder Mr. Musk, Tesla’s chief executive and biggest shareholder, is the envy of the automotive world, all the more so since the company is barely profitable. Yes, it made a profit in the past four consecutive quarters, the first time it has done so since he first invested in the company in 2004. But the profits didn’t come from auto sales; they came from the sale of regulatory credits to rivals whose cars are largely powered by internal-combustion engines, not zero-emission batteries.

To be sure, there is a lot to like about Tesla. Its production is expected to reach 500,000 vehicles this year. New factories are under construction to meet rising demand. The company’s market share is big. In the first half of this year, it owned almost 30 per cent of the global market for pure electric vehicles. Profits may become the norm, not the exception. Tesla may roll out a new battery that would greatly extend the range of its cars while lowering their costs – Teslas are unaffordable for average families.

Still, Tesla’s valuation is wildly over the top and seems based on investors' belief that the company will a) utterly dominate the electric car market globally, b) utterly dominate the wider “mobility” market that would see fleets of driverless cars effectively replace public transportation, c) soon invent a miracle battery (the lithium-ion batteries used today in most electric cars are rather old technology), and d) greatly expand the market for home energy storage products like Tesla’s Powerwall batteries.

Any of the above is possible, but the first two seem unlikely, for the simple reason that the competition is finally coming on strong. Every automaker of any size is investing fortunes into electric vehicles. These products are hitting the market, and some are getting rave reviews. Porsche SE is selling the Taycan high-performance sedan, a competitor to the Tesla S. Volkswagen is spending €60-billion ($93-billion) on electrification and plans to launch as many as 75 all-electric models by the end of this decade. Honda Motor Co. Ltd. says two-thirds of its models will be electric by 2030. It is France’s Renault SA, not Tesla, that is making the top-selling electric car in Europe – the subcompact Zoe.

Tesla is already losing market share, at least in Europe. According to JATO Dynamics, an automotive market research firm, sales of Teslas in Europe fell 23 per cent in the first half of this year over the same period last year, something that could be attributed to the pandemic except for the fact that many other automakers – Renault, VW, Hyundai Motor Co., Peugeot SA, Kia Motors Corp. and Audi AG – reported higher electric car sales.

The old, established automakers have two huge advantages over Tesla. The first is that they have vast engineering and manufacturing operations that could efficiently spew out millions of electric cars if buyers wanted them. The second is that car companies are considered national champions. They will be nurtured endlessly by governments eager to protect high-paying manufacturing and research jobs. There is no way they will allow Tesla, or Chinese competitors, to steal the electric car show.

Tesla shares, of course, could keep rising. The launch of a revolutionary new battery on Tesla’s annual “Battery Day” on Sept. 22 could whip the faithful into another frenzied round of buying. Absent that, it’s starting to look like Tesla’s salad days are behind it.

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