Tesla edges GM to be­come most valu­able U.S. car­maker

Rise in com­pany’s shares driven by prom­ise, not profit

The Washington Post - - FRONT PAGE - BY THOMAS HEATH

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 high­pro­file 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

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 lon­gawaited 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,” Feinan­other seth said.

Tesla’s rep­u­ta­tion as be­yond-acar 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 also is ex­plor­ing tech­nol­ogy for self-driv­ing cars.

Musk’s out­reach to Trump and the new ad­min­is­tra­tion’s em­pha­sis on U.S. man­u­fac­tur­ing is work­ing to Tesla’s ad­van­tage, help­ing pro­pel the stock even more since the Novem­ber elec­tion and by more than 40 per­cent since Jan­uary.

“The mar­ket is will­ing to say I’m go­ing to value you based on what I think your fu­ture po­ten­tial is, and it could be off of what you think they could make sell­ing cars, what they could make sell­ing bat­ter­ies, what they could make sell­ing so­lar or what they could make as a mo­bil­ity com­pany,” said Matthew Stover, an an­a­lyst with Susque­hanna Fi­nan­cial Group. “Ev­ery­thing is on the ta­ble, and it’s all spec­u­la­tive.”

Musk, 45, is a South African­born Cana­dian Amer­i­can busi­ness mogul with an es­ti­mated net worth of $14.8 bil­lion, ac­cord­ing to the lat­est es­ti­mates by Forbes magazine. He made his for­tune sell­ing mon­eyPayPal to eBay in 2002 for $1.5 bil­lion.

Like Ama­zon.com founder (and Wash­ing­ton Post owner) Jef­frey P. Be­zos, Musk is known for pur­suits that take him be­yond his pri­mary busi­ness. Be­zos, through Blue Ori­gin, and Musk, through SpaceX, have launched pri­vate com­pa­nies aimed at hu­man space­flight.

De­spite’s GM’s dom­i­nance in car sales (its U.S. mar­ket share is 17.3 per­cent com­pared with 0.2 per­cent for Tesla), an­a­lysts ad­mire what Musk has built.

“Mak­ing cars is a hard busi­ness,” Fein­seth said, “and put­ting to­gether in such a short time a state-of-the-art man­u­fac­tur­ing fa­cil­ity along with a dealer and show­rooms and a support net­work of ser­vice cen­ters and charg­ing fa­cil­i­ties, that is very hard.”

De­spite the en­gag­ing story, the Tesla end­ing is still up for grabs.

One chal­lenge is drivers’ fear that they will run out of power and be left stranded, known as range anx­i­ety. Tesla’s mod­els have a range gen­er­ally less than 250 miles.

Ac­cord­ing to Tesla’s web­site, Tesla buy­ers, like all buy­ers of elec­tric ve­hi­cles, may claim a $7,500 fed­eral in­come tax credit. Sev­eral states of­fer ad­di­tional in­cen­tives, often tak­ing the form of a re­bate.

There is some chance that a Repub­li­can Congress and ad­min­is­tra­tion could re­move such in­cen­tives, although in­vestor fears have ap­par­ently re­ceded based on the soar­ing stock price.

Stover said that Tesla still has to prove it can make money. Its rise, he says, “says a lot more about the stock mar­ket than it does about the auto in­dus­try.”


A Tesla Model X SUV is checked at the Tesla fac­tory in the Nether­lands. The com­pany pro­duced just 84,000 cars last year, with start­ing prices of $68,000. But shares of Tesla put the com­pany’s value at $51.5 bil­lion, above GM’s $50.2 bil­lion.

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