Tesla Inc.’s (NASDAQ: TSLA) market capitalization has jumped to $697 billion. Extraordinarily, the company’s value stands higher than those of either Berkshire Hathaway or Walmart. It also has reached the point where its market value has topped 30% of that of Apple Inc. (NASDAQ: AAPL), the most valuable public corporation in the world. At the start of 2020, that figure was closer to 5%. The number fans the flames of arguments that Tesla must be overvalued.
In the past year, Apple’s shares have risen 77%, as Tesla’s have surged 730% higher. While Apple is the most profitable tech company in the world, Tesla does little more than breakeven. Tesla sold approximately 500,000 cars last year, which does not even put it into the top 20 car companies worldwide in terms of vehicle sales by manufacturer.
Apple has climbed its way to its current $2.24 trillion market cap on the back of an iPhone franchise that would produce unit sales of almost 100 million in the first half of this year. In the fiscal year that just ended, iPhone revenue reached $138 billion, of Apple’s total $260 billion. The high end of expectation is that iPhone revenue could rise above $175 billion in the current fiscal year.
Apple’s fastest emerging business, which it calls “services,” posted revenue of $54 billion last year. Apple’s management argues this is Apple’s growth sweet spot. This revenue includes Apple’s App Store, Apple Pay, Apple Music and Apple TV. Ten years ago, this segment of Apple’s revenue amounted to little more than a rounding error.
What has Tesla done to have a market value of 30% of Apple’s? As a part of the auto industry, the argument turns on its role as the popularizer of electric cars. Nevertheless, Tesla’s sole direct benefit of this is its auto revenue annual run rate of $40 billion with a net income run rate of only $1 billion.
Apple has built a moat that cannot be crossed by any other company in the world. It combines brand, research and development, product design and marketing. Its device ownership base around the world numbers in the billions. Most of the foundations of this work stretch back decades. Tesla, on the other hand, faces competition that becomes more vicious by the day. Every major car company in the world already has or will release its own electric vehicle (EV) products. General Motors believes it can sell a million EVs in 2025. The market soon will be awash with competition. Tesla may continue to hold a technology edge, but that will not entirely protect it from the onslaught.
Thirty percent of Apple is too much.