Tesla Is Worth More Than Walmart

Tesla Inc.’s (NASDAQ: TSLA) market capitalization has raced by $500 billion, which made Elon Musk, its founder, the second richest man in America. In the process, the value of the company moved ahead of Walmart Inc. (NYSE: WMT), the largest retailer in the world. The news shows that either the electric car business will take over the auto industry soon or that traditional retail is dying faster than expected.

Tesla’s market cap stands at $526 billion. Its revenue in the third quarter was modest (by the standards of large global car companies) at $8.8 billion. Of this revenue, $7.6 billion was from auto operations. Tesla is also in the solar power business. Net income across the company was $331 million, and Tesla delivered 139,593 vehicles in the period.

For some sense of scale, note that Volkswagen sold almost 11 million cars worldwide last year, spread across all of its brands. Of course, VW’s revenue growth is in the low single-digit billions, and Tesla continues to post double-digit growth. However, it would take years for Tesla to match VW unit sales, even at its current growth pace.

Walmart has a $428 billion market cap. Its revenue in the most recent quarter was $134.7 billion, which was up by 6% year over year. Its e-commerce operations rose by 79%. Net income was $5.2 billion. Walmart ended the quarter with over 11,400 store locations.

The case against a bright future for Walmart is primarily that and other large e-commerce companies will chop away at its revenue as people move online to buy most of what Walmart sells in stores. Walmart does have, by many measures, the second-largest e-commerce operation in America. However, the company is burdened by 2 million employees worldwide and the cost of the operations of thousands of stores. In a nutshell, that is the argument against Walmart’s ability to stay profitable, or even hold its own in the broader world of retail.

Tesla’s market cap is based mostly on two arguments. The first is that fossil-fueled cars will soon begin to disappear around the world. The only alternative is electric-powered vehicles. Second, Tesla has to dominate this new world, with only modest competition for global sales from leaders like VW. Even with its balance sheet, its research and development and its product development, VW cannot catch Tesla in this market, this line of reasoning says.

Walmart’s fate will play out over several years, as its same-store sales numbers get posted quarter after quarter, along with its e-commerce numbers. Tesla, on the other hand, needs to sell over a million vehicles a year, quickly, or the doubts about its future will spread fast.