[jonathankoren]

Car manufacturers aren't by an large allowed to own dealerships in the United States. The point is, the number of dealerships is a good proxy for demand and sales. Also, dealerships by and large don't make much money on the sale of cars (due to having to purchase the cars from the manufacturer), but rather they make their money on the service and repair of cars. Even then, they're not really rolling in the dough.

General Motors's old financial arm was GMAC, now Ally Bank. Under General Motors's ownership, they offered credit cards[+], mortgages, and were in the insurance market since 1939. This is not an innovation.

[+] This was the only credit card my parents had for over a decade.

[panick21_]

> but rather they make their money on the service and repair of cars. Even then, they're not really rolling in the dough.

Car companies already make huge money on service. Plus in sum, all dealerships combined make huge money on service.

Once Tesla has an large aging fleet they will make an absurd amount of money. Something people don't yet consider is that Tesla has been losing massive amounts money building out their global service network and because of having no fleet, making little money from it.

Tesla has industry leading margin now, while having negative margin on the highest high margin business for traditional companies.

[kragen]

It's not a good proxy for comparing demand and sales between Tesla and, say, GM. GM has a network of franchisees and Tesla doesn't, because Tesla wants the profits (sales, service, whatever) for themselves, but state laws won't let them own dealerships.

So, if you want to compare GM and Tesla's market caps, you need to lump the appropriate fraction of GM's franchisees' market caps in with GM's in order to make them comparable.

[jonathankoren]

I've already addressed sales. It was trading at 161x future earnings before this deal. That's an insane multiple.

As far as summing up dealerships, let's go!

Tesla has 438 stores worldwide. Toyota has 1500 dealerships in the United States alone. GM? 4500 in the United States.

Do you honestly think that if we summed up all the Toyota dealerships in the world, it would be worth $750 billion? I don't, but that's how much they'd have to be worth to give Toyota a market cap of 1 trillion dollars.

Or to flip it around, even if we spotted Tesla manufacturing 2x Toyota. (Toyota is the most valuable manufacturer by market cap at $240 billion.), that would mean those 438 stores have to be worth over a billion dollars EACH.

It's even worse for General Motors. Their market cap is only 84 billion. The entire worldwide network of dealerships would have to be 11x General Motors proper, or over $900 billion dollars.

https://finance.yahoo.com/quote/TM/

https://finance.yahoo.com/quote/GM/

[kragen]

Agreed about 161 years, though I'm not sure how you can say "161x future earnings"; we don't know what the future earnings are, because they're in the future. I presume you mean "161x current [annual] earnings".

Generally I'd expect service and repairs to be of the same order of magnitude as sales, because if you have to spend $5000 a year to service and repair a $20000 car, you'll probably junk it and buy a new car that breaks down less, while if it costs you $500 a year to keep it going you'll probably either keep it running or sell it as a used car. One revenue stream might be two or three times bigger than the other, of course, and the profit margins might differ, and the dealerships don't capture all the service and repair.

I'm not sure what the number of dealerships tells us about the relative earnings potential. B. Dalton had more dealerships than Amazon ten years ago. (Or do we count B. Dalton and Waldenbooks as "dealerships of Hachette and Penguin Random House"?)

We can probably do a reasonable Fermi estimate of total dealership profits, though; 1.3 million car salespeople in the US probably means about US$60 billion in car sales commissions per year, which is about US$250 billion in car sales per year and something like US$25 billion in dealership profits; at a reasonable P/E of 30 years, the capital stock of US auto dealers would be worth about US$750 billion in total. https://policyadvice.net/insurance/insights/us-auto-sales-st... says the number of new cars sold in the US is 17 million a year, which suggests that these figures are in the ballpark, since it would mean that the average car cost US$14700, which seems maybe a little low for the US but not absurd. However, used cars are an additional 40 million a year, so maybe US$1.5 trillion for the capital stock of US auto dealers. Adding in whatever they make on sales and service, say US$3 trillion.

The worldwide number is 74 million new cars per year, 4.4 times the US number, so if we just multiply the US number by 3 (probably the average car in the US costs more), we get US$6 trillion for the value of hypothetical worldwide car dealership capital stock.

So, yeah, it does seem plausible that all the Toyota dealerships in the world would be worth US$750 billion, with similar numbers for GM, Fiat, etc.

Another thing, though, is that Tesla's vertical integration goes both directions, and you're not counting companies like American Axle & Manufacturing, Mold Masters Co., Grand Traverse Plastics, and Bosch as part of GM's market cap either.

So, I think buying TSLA at a P/E of 161 years is a pretty daring bet, and there's a significant chance it won't pay off. But I don't think the comparison to other car companies makes it look nearly as crazy as you make it sound, even if TSLA doesn't end up running our power grid on its batteries.

[acchow]

There are 16,708 car dealerships in the US. You claim the total market cap of these dealerships is $1.5tn? For a value of $90M per dealership?

Autonation is a publicly traded network of car dealerships. Market cap of $7.9bn for 545 locations. That's $14.5M per location.