Ask HN: How in the world is $TSLA worth more than $TM?

[Spinosaurus]

Tesla is now worth more than Toyota, and yet has pretty much lost money every quarter. Toyota, on the other hand, has had billions in profit every quarter for years.

https://www.macrotrends.net/stocks/stock-comparison?s=net-income&axis=single&comp=TM:TSLA

Is there a reasonable explanation for this, or is it a complete bubble?

[alexmingoia]

Stock prices do not reflect future earnings or company fundamentals, despite popular belief. The price of tradable assets with zero possible earnings demonstrate this.

Stock price is purely a function of supply and demand, and the demand does not have to be based on any sort of rational expectation of earnings. Price psychology is the biggest factor in my experience. People often buy for no reason other than the price moving up, which creates a cycle of upward price pressure which continues until enough decide to sell to take a profit, or there are no more buyers. This usually has little to do with company fundamentals like earnings. Day trading is pretty much based entirely on this logic, looking only at price and volume.

The lack of past profit actually fuels a higher price for Tesla, because it allows for imagining bigger profits in the future. A company that has a history of profits leaves little to the imagination. The story matters more than reality.

At the macro level, yield had dried up everywhere but stocks, combined with the Fed giving money to prop traders and signaling that they will buy junk assets and attempt to stop the market from crashing through any means possible. The market has become saturated with day traders and swing traders (retail and institutional) looking for volatility and price movement more than earnings or fundamentals, and newer stocks like Tesla attract them over established stocks like Toyota.

[ksec]

If you believe in all of the following,

Model Y, Semi, Truck and Model 3 will being in 5x the revenue, RoboTaxi, Lv5 AV coming in anytime, Tesla has the largest Battery Manufacturing Plant on the Planet, Tesla has 5 years lead in Battery Production, SolarCity taking over Solar Energy production, Elon Musk.....

But Yes... I still dont understand how on earth is it worth $200B.

[rich_sasha]

Agree, but would extend: company “value” as in market cap is also affected by other things, notably debt; given two identical companies but one with more debt, it will have lower market cap.

There is a bit on this here: https://mondaynote.com/tesla-and-apple-valuation-questions-c... apparently for Ford it’s pension liabilities are more than 2x it’s market cap; so if you were to exclude them, the company is worth 3x more. Tesla, as a young company (and born in a different era) doesn’t have such liabilities. Etc etc

[refurb]

Because stock prices reflect future earnings, not past earnings.

Basically, people buying TSLA stock believe future sales will be larger than Toyota.

[xkjkls]

Future Earnings + Current net assets.

I have a hard time seeing how future earnings of Tesla even exceeds the liquidation value of Toyota, given the stock has never made earnings a year in its life.

[adventured]

You're contradicting yourself in the skepticism.

You recognize the valuation premise is based on expectations of future results, then you nail Tesla for its past results (no history of annual profit) for a supporting argument ("given the stock has never...").

[xkjkls]

You do realize that when Tesla was valued at $300 in 2017, the projections for its revenue for 2020 were $38 billion and profit of $5 billion? They aren’t even going to reach a light year from that, yet the stock is supposedly now $1000.

[brentonator]

Somebody needs some https://shop.tesla.com/product/tesla-short-shorts

[woah]

Many of them believe that Tesla stock will somehow get them a piece of spacex. Many more are just following the price.

[ksec]

I have seen that floating around. Is there any reason why this is being so? They are just two different companies belong mostly to the same person.

Why would owning Tesla gets your SpaceX?

[Spinosaurus]

It doesn't, at all. I've heard suggestions that great news coming out of SpaceX does impact Tesla, but not the other way around. Plus, SpaceX isn't a public company.

[xkjkls]

And they would have to pay market rates for that. There's no upside there.

[aeternum]

Not just larger than Toyota. Larger than Toyota, Panasonic (batteries), FirstSolar (and other solar energy companies), Waymo (since they are arguably further ahead on self-driving), etc.

[buboard]

> people buying TSLA stock believe future sales will be larger than Toyota

... until the day they sell

[nine_zeros]

Is there even a meaning to the stock market anymore? Share prices are running on a greater fool theory, aided by long term capital gains and the "reinvest in growth" charade, which will inevitably peak out. Everyone's just waiting to time the peak.

[h2odragon]

Seems insane to me. For some time its been my opinion that "the markets" weren't connected to any reality I can see. From my hilltop in the woods I don't see far; so that doens't necessarily signify much.

From my limited perspective it sure looks like there's so much play money seeking return that "brand recognition" is the only real reason to choose between one offering and another.

[Spinosaurus]

I wonder how many individuals received one of the recent stimulus checks and parked it right into Tesla stock.

[xkjkls]

Probably all of them followers of Dave Portnoy.

[playingchanges]

I wonder what the perception of Tesla will be in a few years when people start wanting to upgrade / sell these cars. I can’t imagine the resale being comparable to a Toyota. There is certainly a reason Toyota is the worlds most popular auto manufacturer, and it is very different from the reasoning people use to justify Tesla bullishness.

[throw51319]

Yeah true... there will be a glut of used cars. Therefore more people can afford to get a used one, which will lower the brand premium they've been enjoying.

[xkjkls]

They already have some of the worst resale values in the business. Driven by a huge number of price cuts they've done to their current models. Why buy a used Tesla when prices have dropped on new Teslas?

[haltingproblem]

Company "worth" is calculated as: last sale price * number of shares outstanding

stock is held by founders and fans ==> few sellers

more buyers than sellers ==> stock price goes up ==> inflates worth

Company worth is an imperfect metric at best and non-sensical at worst.

[aeternum]

I've heard this argument many times, but consider that everyone holding a share has the option to sell at the market (last sale price) and are choosing not to. That seems like a pretty fair way of calculating worth.

[haltingproblem]

Good point.

Stockholders are not free to sell, technically or for practical purposes. Many stockholders are under restrictions to hold like employees, founders, index funds etc. Most non-index institutional holders have to hold TSLA if they want exposure to Automotive, EV, Battery industries. There is simply no option.

On non-technical restrictions, what do you think will happen to TSLA,FB or AMZN stock if Musk, Zuck or Bezos started dumping their holdings respectively. The stock holds up precisely because the the founder is holding it. Necessary but not sufficient.

Finally not everyone who wants to sell can avail the last price. Every bid taker (seller) causes a price impact. This has been explored extensively by academics in Market impact models and Optimal execution of block trades. See [1] and [2]. This is the financial econometric model of "a rush for the exits will cause a stock to crater".

Last price is imperfect but not useless. Depends on how much signal vs. noise you attribute to the sale price in the value discovery process.

[1] http://tuvalu.santafe.edu/~jdf/papers/mastercurve.pdf

[2] https://www.math.nyu.edu/faculty/chriss/optliq_f.pdf

[pintxo]

but if all of them would, the price would fall...

[xkjkls]

I mean, market cap is probably better than most as a metric for valuing companies. If it wasn't, you could make a killing in the stock market by finding companies that are off-base of their value.

[bryanlarsen]

It's not.

Enterprise value of Toyota: $318B

Enterprise value of Tesla: $205B

[matgessel]

A little more info for the curious:

Toyota Market Cap: 171.994B

Tesla Market Cap: 205.619B

> Market capitalization, commonly called market cap, is the market value of a publicly traded company's outstanding shares

> Market cap is given by the formula MC = N * P, where MC is the market capitalization, N is the number of shares outstanding, and P is the closing price per share

> A more comprehensive measure is enterprise value (EV), which gives effect to outstanding debt, preferred stock, and other factors

https://en.wikipedia.org/wiki/Market_capitalization

[jackson1442]

According to the NYSE, the market cap of $TM is $171.88B and $TSLA is $205.88B.

[bryanlarsen]

That's the point. Market cap is only a portion of enterprise value.

https://www.investopedia.com/terms/e/enterprisevalue.asp

[xkjkls]

Market cap is just a reflection of the total value of shares, enterprise value is a greater reflection of the perception of future cash flows, since it includes debt in the calculation.

Basically, Toyota has more debt, therefore its future earnings are assumed to be greater, because the market is valuing it at the current price, even knowing its debt burden. (Though there is alot of problems with this analysis based on how debt is accounted for, especially given companies like Toyota that have large financial units attached to them for loans).

[lootsauce]

It isn't worth that much. It is however successful at making its stock price go up. These are not the same thing. If one share trades hands at $0.01 above the market then the market cap is outstanding shares * new price. Tesla has something like 185 million outstanding shares. That means a 1 cent change in price nets the market cap of the company 1.85 million. $0.01 = $1.8 million. Does that seem like a reality based means of setting the value of anything? It's about human psychology in the setting of a game at that moment. I would not take a linear extrapolation of that as a meaningful metric of the value of a company.

You can go down rabbit holes of apparent market manipulation, seeming fraudulent financial statements, an unquestioning media, toothless and out to lunch regulators, bubble inducing liquidity pushed by central banks but that stuff doesn't matter until it does. See Wirecard, Enron, Et al.

[tinus_hn]

Do you think the future is cars running on fossil fuels, or electric cars?

[xkjkls]

That's not the question though. Even if you believe EVs are the future, you still have to convince people that Toyota can't make them.

[tinus_hn]

Why would you have to convince anyone? If you believe Tesla is better positioned for the future than Toyota, buy Tesla stock and not Toyota stock.

[xkjkls]

Because valuations should be debated? How else is anyone going to come to a good judgement?

[doopy-loopy2]

what's your time horizon?

[imnotreallynew]

Speculation, incredible liquidity in the system, etc.

That would be my guess.

[qwerty456127]

Perhaps because Tesla is less bloated? Buying shares in an old big corporation feels like hiring the Vogon bureaucrats while investing in Tesla and SpaceX seems like paying young smart people for getting up-to-date things done.

[Spinosaurus]

> Perhaps because Tesla is less bloated?

Is that simply a perception you think many might investors have? Tesla has lost money every year, while Toyota has showed substantial profit. Without knowing anything else about these companies, an outside observer might think Tesla was the "bloated" of the two.

[qwerty456127]

I don't know the proportion of investors who think this way yet I simply can't believe there is going to be much place for non-electric cars in cities in future. So, given how strongly do electric cars associate with the Tesla brand, I find it improbable that Tesla is going to fail or stagnate. Cities probably are going to start phasing gas/diesel cars out as soon as they recover from the CoV-caused economic crisis or shortly after. I know Toyota also builds electric and hybrid cars but many consumers don't know.

[xkjkls]

The company has never made a profit. Why do you think it is impossible for it to fail?

[drcongo]

Toyota are also pioneers of JIT manufacturing.