Can Tesla Be More Valuable Than GM?

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Tesla Motors Inc.’s (NASDAQ: TSLA) market capitalization is $35 billion. That of General Motors Co. (NYSE: GM) is $55 billion. Can Tesla pass GM by this measure? It is not out of the question, because Tesla’s shares are surging and GM’s legal woes due to recalls and the impact this could have on earnings are not over.

Tesla shares are at an all-time high of about $270. That is up from a 52-week low of $116. GM trades at $34, down from a 52-week high of nearly $42. Perhaps more telling, GM’s shares are flat over five years, while the S&P 500 has risen 60%. Some of the drop is due to GM’s horrible lack of sales in Europe. However, that trouble does not account for all of the fall. The market expects that the deaths caused by faulty ignitions could cost the company billions in profits and may even trigger a decline in vehicle sales.

The greatest contrast between GM and Tesla is in sales. GM’s revenue last year was $155 billion, and its global deliveries of vehicles were 9.7 million. Tesla’s sales last year were just over $2 billion. But it shipped fewer than 10,000 cars. Granted, Tesla’s growth is incredible. Its revenue rose to $769 million in the second quarter of this year, compared to $405 million in the same period a year ago.

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Much of the excitement about Tesla is anticipated future grow. The company announced in its most recent quarter earnings statement:

We have had an active first half of 2014, and the rest of the year is expected to be even busier. The development of our large-scale battery manufacturing facility, known as the Tesla Gigafactory, is proceeding well. We have formalized our agreement with Panasonic for cell manufacturing at the Gigafactory and remain on track with the site selection process. In addition, we are adding new production capacity at our Fremont factory that will allow us to meet the growing worldwide demand for our vehicles. The speed at which we are executing this capacity upgrade will allow us to exceed 35,000 Model S deliveries this year. Provided that we execute well and there are no serious macroeconomic shocks, Tesla’s annualized delivery rate should exceed 100,000 units by the end of next year.

Furthermore, Tesla’s founder, Elon Musk, says the company soon will produce a car that sells for less than $40,000. That would allow much more of the public to buy a Tesla vehicle.

What will almost certainly stop the advance of Tesla’s shares and keep its market cap below GM’s is the mounting competition the electric car company faces. Every large car manufacturer in the world is at some stage of producing a widely available all-electric car. Within five years, it is safe to say, the availability of these vehicles will be widespread. Even if Tesla production reaches into the hundreds of thousands, its expansion will be capped by the fact that everyone wants into its market.

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