The Tesla (NASDAQ: TSLA) stock price has exploded since September. TSLA currently trades at $1,185.86, just 2% below Monday’s all-time high of $1,209.75. This values the electric car maker at $1.17trn, making Tesla the fifth-largest US-listed company. And yet this business is barely profitable and its shares are insanely expensive. But does this really matter?
The Tesla stock price explodes
Lately, the Tesla stock price has accelerated like a Model S Plaid. Over five days, it has gained 11.1% and is up more than half (+51.7%) in one month. In three months, it has surged by almost two-thirds (+66.4%). Over one year, it has almost tripled, skyrocketing by 180%. At end-2019, before Covid-19, TSLA closed at $83.67. Now it’s 14.2 times as much. Over five years, this wonder stock’s value has increased more than 30-fold.
But when I compare TSLA’s performance with Tesla’s underlying financial results, I see a huge disconnect. Companies of Tesla’s size generally have earnings of tens or hundreds of billions of dollars a year. Yet Tesla’s sales and earnings are modest for a mega-cap company. So what’s going on — and should I stop worrying about the Tesla stock price?
Teslas are great, but TSLA is crazy
My first Tesla trip came on New Year’s Day 2019, in a taxi home from a New Year’s Eve party. On an empty main road in the early hours of the morning, the acceleration and ride quietness were like nothing I’d ever experienced. However, I found the car’s trim and finishing rather plastic and tacky for a high-end car.Â
The point I’m getting to is this. Tesla sells great products packed with frankly amazing technology. But its sales are very, very modest compared with the world’s largest carmakers. Tesla delivered a mere 499k vehicles in 2020 and just over 627k cars in 2021, including 241k in Q3. Thus, its total sales are growing fast and will surely exceed 1m vehicles in 2022. But Tesla’s current market capitalisation ‘values’ each car to be delivered next year at $1.17m . This strikes me as a massive over-valuation. In contrast, the market values Toyota — the world’s largest carmaker — at about $29k for each of its 10m yearly vehicle sales.
Then again, Tesla is selling the future (electric cars), while Toyota is selling the past (fossil-fuelled vehicles). Also, Tesla is growing at breakneck pace and is set to double its sales in 2022. However, Toyota’s first-half sales surged by almost a third (+32.7%) versus H1/2020. Not bad, given Toyota supposedly sells an ‘obsolete’ product.
TSLA keeps going to the moon?
Mega-billionaire investment guru Warren Buffett wisely remarked in 2008, “Price is what you pay; value is what you get”. It seems obvious to me as a veteran value investor that TSLA is hugely, mind-bendingly overvalued. But that doesn’t matter to Tesla’s go-go growth investors. For Tesla acolytes, boring, old-fashioned fundamentals such as price-to-earnings ratios, earnings yields, and dividend yields don’t matter. (For the record, Tesla’s are 385, 0.26%, and 0%.) What matters for buyers of Tesla stock is the company’s narrative. It’s this story/hype/exuberance that drives TSLA’s incredible returns, not its valuation metrics. And Elon Musk is a master storyteller, so the Tesla stock price might keep on climbing, despite my previous disbelief!