Economy

Tesla is insanely overvalued vis-a-vis Ford and GM

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Tesla logo

Every once in a while I’m reminded in stark terms why I’m not a market trader, why I don’t consider even the most sacrosanct economic “laws” as nothing more than generic guidelines, and why the market should always be treated as if it’s almost, but not quite as rational as a rabid, starving badger suffering from mad cow disease. Today’s example is this: Tesla shares break $300 for the first time, closing in on GM’s market cap.

In no way is Telsa anywhere near as valuable as Ford or GM. Last quarter, Telsa sold 25,418 vehicles. Ford, on the other hand, sold nearly 10x that many in March alone. And GM? They sold 203,133 vehicles in March.

At the end of 2016, Tesla’s balance sheet had $22.6 billion in total assets and $17.9 billion in total liabilities. That’s about $4.7 billion more assets than liabilities. Ford’s balance sheet showed $238 billion in total assets, $208.8 billion in total liabilities, or about $29.2 billion more assets than liabilities. And GM? $221.7 billion in total assets, $177.9 billion in total liabilities, or about $43.8 billion more assets than liabilities.

I get that investors want to jump on board a company that has the potential for radical growth. Tesla may have that kind of potential. But valuing a tiny company that lost nearly $700 million in 2016 and that has essentially a single factory over that of Ford – which made $4.6 billion in 2016 – and nearly equal to GM ($9.4 billion positive in 2016) is beyond insanity. In any rational world, Tesla’s shares would be trading at a small fraction of the approximately $300 per share they are.

But hey, I’m just an engineer. I work with actual physical laws, as opposed to imaginary market “laws.” All I know for sure is that I’m not crazy enough to invest any of my money in a company that is so irrationally overvalued.

Categories: Economy

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9 replies »

  1. Market values are about gambling, period. It’s about if I invest a dollar, where can I get the most dollars back. You might as well be arguing over logos.

    • I get that. But sometimes things are so insane, so out of touch with anything which has a passing resemblance to a fever dream about reality that I can’t just let it sit. Today it was Tesla vs. Ford, tomorrow it might be Google, and Thursday Facebook.

        • No, I’m saying that just because market valuations are essentially about gambling doesn’t mean that they should be entirely divorced from reality. It’s like playing poker – no-one rational bets their house on getting a royal flush the hard way in a single hand before the cards have even been dealt.

        • That analogy doesn’t work at all. Betting on a flush is completely contextualized within the game. You’re comparing betting on a flush to buying life insurance. Different games, different rules. Is Tesla in reality a bigger deal than Ford? Of course not. But that isn’t the game at all.

        • I disagree. I think the poker analogy is quite accurate. In poker you have data that enables you to estimate the odds of any given hand, the rules are defined by tradition or by the gambling establishment hosting the game, there’s a decent amount of luck involved, you need to be observant of your fellow players, and having a good grasp of personal psychology is helpful. For example, even when you’re using a card shoe you can still count cards to update your estimate of the odds of any particular hand. Being observant helps determine if your opponent has tells that you can exploit to take their money. You have to use psychology to determine when call or bluff and how to bet in a way that lures your opponents into staying in the game as long as possible while not being played by your opponents who are trying to do the exact same thing to you.

          Playing the market is pretty much the same thing. There’s a lot of data available that helps determine the odds of any given stock increasing or decreasing in value, there are rules set by the government and/or the exchange on how you play the game and what kind of trades you’re allowed to make and when, success is defined in many respects by a decent amount of luck, observation is critical, and there’s a lot of psychology involved. A traders needs to be observant of different things, and the psychology involved is group psychology rather than individual psychology, but other than that I see the type of gambling as pretty much the same thing.

          Trading on a single stock is not at all like buying life insurance, which is a bet that you won’t die in a particular period of time based entirely on your particular circumstances as compared to the statistics of massive populations of people. There is an investment method that is like that – investing in straight index funds. NYSE or S&P500 funds that go up or down in lock-step with the index they’re based on. In that case you’re betting on the overall national or international economy growing or shrinking, nothing more. And that’s about as safe a bet as you’ll ever make. But that kind of investing has nothing to do with the market valuation of Tesla vs. Ford or GM.

        • Again, you’re missing the point. The market is internally consistent. Poker is internally consistent. Insurance is internally consistent. But that isn’t what you’re doing. You’re criticizing poker because it isn’t like insurance.

  3. But that isn’t the game at all.
    Trading on a single stock is not at all like buying life insurance, which is a bet that you won’t die in a particular period of time based entirely on your particular circumstances as compared to the statistics of massive populations of people.