Those who invest in Tesla have placed their hopes in a world of electric vehicles almost exclusively on the shoulders of Elon Musk. Its Palo Alto, California-based car company, which announced a profit of $ 104 million in the second quarter on Wednesday afternoon, is close to exceeding $ 300 billion in market capitalization, with the company aiming to around a third of the total market value of its sector. As crazy as it sounds, it is related to reality.
At the current share price, Tesla is trading at 97 times the estimate for 2022, according to Refinitiv data. This implies that shareholders contemplate that the company will soon be selling millions of cars, well above the 400,000 it delivered in 2019.
This electrical exuberance has a contagious point: Rivian, whose investors include Amazon.com, BlackRock and Ford Motor, has attracted an investment of almost $ 4 billion since December; His SUV and pick-up are slated to go on sale next year. On the other hand, two rivals that are taking their first steps have been bought by special-purpose entities: a deal closed last week places Fisker’s valuation, which aims to sell the “most exciting and sustainable vehicles”, at 2.9 billion Dollars. Nikola, which closed its merger with SPAC last month, is now worth $ 14 billion, almost as much as Nissan Motor, PSA (which owns Peugeot) and Fiat Chrysler.
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There is some logic to what Tesla’s assessment, especially, says about the outlook for electric cars. Suppose global sales increase a third a year from 2.2 million units in 2019. There are markets like China that have in fact been growing much faster. Factors such as lower battery prices or more restrictive emission standards, in addition to the greater number of charging stations, also help.
This means that around 12 million electric vehicles would be sold in 2025. If we add to this an average price of $ 30,000, a generous pre-tax margin of 12%, a tax rate of 25% and a multiple of 18 times for A more mature market that continues to grow, gives us a total shareholder value of $ 590 billion for the electric vehicle market as a whole. Applying a 10% annual discount rate, we’re left with $ 350 billion today, just $ 30 billion more than the value that public and private investors place on Tesla, Rivian, Nikola and Fisker combined.
There is a problem, and that is that investors take it for granted that these four companies have a practically insured market. But it turns out that traditional manufacturers are investing hundreds of billions of dollars in electrification, and theirs are most of the 200 different models expected to be launched on the market in the next five years. Investors are going to have to change cars mid-career.