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this post was submitted on 02 Jan 2025
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Holy hell that really puts things in perspective 😮
Could you explain it to me? (no sarcasm) It seems to be saying that the stock prices are way out of balance to what it's worth. Are there regulations around that?
Edit: I'm talking about the Market Cap part. I don't understand how the value can be that high compared to all of the other companies, especially China.
Market capitalization is just simple math, multiplying a company's stock price by the number of shares that have been issued. Tesla has issued roughly 3.2 billion shares and is currently trading at around $550, which makes their current market cap about $1.75 trillion dollars.
On its face it seems utterly nonsensical that Tesla is worth as much as all other auto makers combined, when Tesla only accounts for something like 5% of total US car sales. There are two reasons I can think of why this is currently so:
It's more that Tesla is a bubble. The thing with bubbles is that it's actually completely rational to buy into them while they're inflating. As long as you get out before they pop, you can make a ton of money.
Rational might be stretching it a bit. There's a reason this is called the Greater Fool Theory.
https://en.m.wikipedia.org/wiki/Greater_fool_theory
It's rational on an individual level because you can know it's a bubble, know the company is overvalued and yet still conclude that the best move is to buy. It's risky, but the question is if the risk/reward ratio is better or worse than the alternatives. In the case of TSLA, you'd have made well over 10x your money if you had bought in 2019. It's why bubbles keep happening despite everyone knowing they exist and will pop eventually.
All of that, plus an additional bit of irrationally, since SpaceX is private, some investors are in Tesla with the idea that some future corporate action will cause Tesla shares to eventually include SpaceX ownership as well.
I subscr to the theory that Tesla is valued not as an automotive stock but as a tech stock. Companies like Toyota and VW are valued wildly different from companies like Google and Amazon and tesla has long pushed for everyone to think of it as far more like apple than like Honda, with quite a bit of success. That's why Elon does his whole Tony stark/Steve jobs routine and swears full self driving and other revolutionary tech. Because otherwise you have to look at his vehicles as the gilded Yugos they are that do have some really great aspects, but ones that are now being done by companies like Hyundai that can actually assemble a car well
Thank you for explaining it so well. I thought that was what it was, but it seems insane to be valued that much higher to investors. Turns out, it probably is insane.
And remember if you want to try to cash in on this information "Markets can remain irrational longer than you can remain solvent"
The entire circle represents total value for all car makers. Area taken up is their ratio of the total. It's geographically colour coded.
Tesla makes a lot more profit per car sold than the other OEMs, and part of the stock price assumed continued growth which would mean even more record profits.
In 2023, Tesla made more net profit than Ford and GM combined on their 1.8m vehicles compared to their 10.6m. Tesla also had really strong growth until this year, and extrapolating the growth and the profits they make led to a higher price. (edit: and in 2022 GM/Ford combined were just slightly above Tesla)
Tesla also has their energy division which is growing rapidly and has better margins than the cars (>100% YoY growth in 2024 and potentially > 100% in 2025)
Nowadays though, it's more on the future potential of FSD/Robotics which is a huge wildcard.
People don't see Ford or GM or Toyota massively expanding so they don't get a higher P/E ratio. In actuality, they've got years of suffering ahead of them during the transition.
Then you have companies like Nissan failing being one of the first domino's in the EV transition, and VW getting destroyed in China causing massive layoffs (25%) and a planned 700k vehicle reduction in 2025.
I'm not saying they deserve the price they have today, but it's more than just cars sold to get to a number, it's looking at future potential.