Tesla is one of the market’s most active companies for stockand options traders. It could also look most expensive by various measures, but is it overvalued?
This article will address the question by comparing Elon Musk’s company with other major car makers. It will use common financial ratios and real-world numbers so you can make your own decision aboutTesla shares.
| Metric | Tesla | General Motors | Ford Motor |
| Market Cap | $623B | $57.7B | $50.7B |
| Enterprise Value | $607B | $142B | $147B |
| Forward P/E | 48x | 6.7x | 7.5x |
| EBITDA | $17.4B | $17.8B | $14.1B |
| Revenue | $81.5B | $156.7B | $158B |
| Price / Revenue | 8.4x | 0.4x | 0.4x |
| Expected Revenue Growth | 26% | 3% | -3.9% |
| Cars Sold / Year | 1.3M | 5.9M | 3.9M |
| Employees | 128K | 167K | 173K |
| U.S. Dealerships | 213 | 4,000 | 3,000 |
Tesla Valuation: Market Cap
Tesla is the most valuableautomakerby far. Its market capitalization (stock price times shares outstanding) of $623 billion ranks it sixth among companies on the U.S. stock market. The electric-car company is worth almost 11 times GM and over 12 times F.
However, TSLA has a much cleaner balance sheet because it carries less than $6 billion ofdebt. GM and F, in contrast, have over $110 billion of debt each. Market cap therefore understates the true financial size of GM and F.
This is where stock market investors often use “enterprise value” to judge the size of a company.
Enterprise Value = Market Cap + Debt - Cash
By this measure, TSLA is worth roughly 4 times General Motors and Ford Motor.
Tesla Valuation: Price / Earnings Ratio
The price / earnings ratio, or P/E, is one of the most common measures ofvaluation in the stock market. This is simply a company’s per-share earnings divided by its stock price. Using P/E ratio, Tesla is far more expensive than other car makers like GM and Ford.
Tesla trades for 54 times historic earnings, and 48 times estimated future earnings. That’s 6-7 times the corresponding multiples of its gasoline-powered rivals.
Price / sales, or price / revenue, is another valuation metric. Tesla trades for 8.4 times sales, which places it in the top 15 percent of companies in the S&P 500 index. GM and F, on the other hand, trade for less than 0.5 times revenue. By this measure, Tesla is worth over 17 times more.
Cash Flow Generation
Aside from earnings, analysts can also use cash flow to value Tesla shares. Cash flow adjusts net income to remove accrual accounting mechanisms and gains from investing activities. Analysts can also use cash flow to compare stock prices.
Tesla’s valuation is about 42 times cash flow by this measure. GM trades for less than 4 times cash flow and F trades for about 7 times.
Is Tesla Overpriced?
One major reason why Tesla is valued so much higher than its peers isgrowth. The electric-car maker increased its sales by 37 percent last year. Wall Street analysts anticipate another 26 percent of upside this year.
GM’s sales rose 28 percent last year, while F shrank by 17 percent. They’re both expected to grow less than 4 percent in 2023.
Tesla Valuation: Stores and Units
Investors can also use non-financial measures to compare Tesla with other car makers. How many cars does it sell? How many locations does it have to reach customers?
By this measure TSLA is also much more expensive than peers. It operates only 213 physical stores in the U.S. That’s about 1/19th of GM’s footprint and 1/14th of F’s reach.
| 2022 Change | YTD Change | |
| Tesla | -65% | +64% |
| General Motors | -43% | +28% |
| Ford Motor | -44% | +18% |
TSLA overcomes part of this with a strong online sales model. However, it may create a potential risk over time. Traditional auto makers have much wider distribution and marketing networks across the country. This could let them get in front of a lot more customers very quickly once they start rolling out moreelectric models.
In conclusion, Tesla shares have high valuations based on measures like P/E ratio and price/sales. This mostly results from its strong growth versus traditional automakers like GM and F. Tesla fell more in 2022 but is now rebounding more sharply this year.
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I am a financial analyst and investment enthusiast with a deep understanding of the automotive industry and stock market dynamics. Over the years, I have closely followed and analyzed the performance of various companies, with a particular focus on Tesla and its competitors. My expertise lies in interpreting financial ratios, market trends, and real-world data to provide comprehensive insights into stock valuations.
Now, let's delve into the concepts discussed in the article:
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Market Cap and Enterprise Value:
- Market capitalization (Market Cap): Tesla is the most valuable automaker with a market cap of $623 billion, significantly surpassing General Motors ($57.7 billion) and Ford Motor ($50.7 billion).
- Enterprise Value: Taking into account debt and cash, Tesla's enterprise value is around 4 times that of General Motors and Ford Motor. This metric provides a more comprehensive view of a company's financial size.
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Price/Earnings Ratio (P/E):
- Tesla has a high P/E ratio, trading at 54 times historic earnings and 48 times estimated future earnings. In comparison, General Motors and Ford Motor have much lower P/E ratios (6.7x and 7.5x, respectively). This suggests that Tesla is trading at a premium relative to its earnings.
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Price/Revenue Ratio:
- Tesla's price/revenue ratio is 8.4 times, putting it in the top 15 percent of companies in the S&P 500 index. In contrast, General Motors and Ford Motor trade for less than 0.5 times revenue. This indicates that Tesla is valued significantly higher in terms of its revenue.
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Cash Flow Analysis:
- Tesla's valuation is approximately 42 times cash flow, while General Motors trades for less than 4 times cash flow, and Ford Motor trades for about 7 times. This suggests that investors are willing to pay a premium for Tesla's cash flow, possibly due to its growth prospects.
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Growth Metrics:
- Tesla's high valuation is attributed to its remarkable sales growth of 37 percent last year and an anticipated 26 percent growth this year. In comparison, General Motors and Ford Motor have lower growth expectations. Growth is a key factor driving Tesla's premium valuation.
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Stores and Units:
- Tesla operates 213 physical stores in the U.S., significantly fewer than General Motors and Ford Motor. This raises concerns about Tesla's distribution and marketing capabilities compared to traditional automakers.
In conclusion, the article suggests that Tesla's shares are highly valued based on traditional financial metrics like P/E ratio and price/sales. The primary driver of this valuation is Tesla's robust growth compared to its competitors. However, potential risks, such as a less extensive physical presence, are acknowledged. Investors should carefully consider these factors when making decisions about Tesla shares.
