Tesla’s ‘crazy’ climb to America’s most valuable car company

Apr 11, 2017, 09:00 AM

A story from The Washington Post.

The luxury electric-car company Tesla has yet to turn a profit, losing hundreds of millions of dollars last year alone. But on Monday, the darling of Silicon Valley became the most valuable American car company, surpassing General Motors, the Detroit granddaddy with $10 billion in sales on nearly 10 million vehicles.

Shares of Tesla, run by high-profile chief executive Elon Musk, put the company’s value at $51.5 billion, above GM’s $50.2 billion. Tesla blew by Ford ($44.6 billion) last week.

Musk’s company produced just 84,000 cars last year, with starting prices of $68,000.

The story of Tesla’s rise speaks to the divided American economy in 2017. Eco-friendly government tax credits, a boom in financial backing and the promise of futuristic innovation have created in Tesla a badge for the drivers who can afford its lofty prices.

At the same time, Tesla, with its long-running saga of production problems, hasn’t come close to fulfilling its mass-market ambitions. Beyond selling far fewer cars than its Detroit rivals, its automated factories employ a fraction of GM’s factory workforce.

Tesla’s stock-market rise has made Musk one of the country’s richest people and given him widespread influence, including another meeting with President Trump on Tuesday. But even critics who say Tesla could represent a technology bubble in the stock market acknowledge that the company’s success points to a new reality in the automotive industry that will reshape the experience of driving for most Americans.

“This is the ultimate bubble, which is doomed to burst,” former GM vice chairman Bob Lutz said. “Tesla cars are fine, but the business model is not,” he said, pointing to the high cost of production, which is not recovered in the sale price. But, he added, “all legacy car companies will soon have a variety” of similar electric vehicles.

Tesla has two models for sale and a third due this year. The Model S starts at $68,000 and goes up to $134,000, depending on power and speed. The Tesla Model X, its sport-utility vehicle, begins at $85,000.

Its midmarket entry, the long-awaited Tesla Model 3, is expected to hit showrooms in the second half of the year and is priced around $35,000. At that price, the Model 3 will compete with GM’s Chevrolet all-electric Bolt and Ford’s all-electric Focus.

Ivan Feinseth, chief investment officer at Tigress Financial Partners, said Tesla competes in a rarefied market: “The car is a high-performance, luxury car that happens to have an electric engine,” Feinseth said. “It competes with BMW, Mercedes and Lexus.”

The stratospheric climb of Tesla’s stock price from $40 in 2013 to more than $312 in trading on Monday, propelled the company to its highest value yet.

A stock analyst’s recommendation to buy Tesla shares is “one of the more absurd I’ve seen in a while,” said Michael Farr, president of Farr, Miller & Washington, a D.C. investment firm. He noted that the company is forecast to lose money in 2018 but that the stock is expected to increase to $368 a share.

“Investors were asked to employ a ‘creative’ valuation methodology. I think that means that when the numbers don’t make any sense, one should ignore them and focus on other things,” Farr said. “It’s like being told to ignore the flames coming out of that airplane, I’m sure your trip will be fine.”

Feinseth said when you look at Tesla’s potential for growth, its dealer network, supply chain and the quality of the Tesla car itself, the value makes more sense.

“It’s not unusual to value growth companies even to the point of being a little crazy,” Feinseth said.

Tesla’s reputation as beyond-a-car company — it recently absorbed Musk’s Solar City company for $5 billion — has captured the imagination of California’s technology pack and, apparently, investors. The company has been developing batteries that could store power from rooftop solar panels, expanding its mission into a renewable-energy enterprise. Tesla als...