How Much Is Tesla Overrated?

Electric car startup Rivian continues to fly sideways. Shares rose another 22% yesterday, bringing the company's capitalization to over $ 100 billion (more than Ford or General Motors). At the same time, the startup did not earn a penny, but generates losses at a rate of 1.2 billion per quarter. The world has definitely gone crazy. But since in the case of Rivian it is difficult to quantify the scale of insanity, because the company, in fact, does not even have a business model yet, let's look at the closest competitor in insanity.

Tesla in 2021 became the most expensive car company in the world and entered the top 5 largest US companies in terms of capitalization, ahead of such monsters as Facebook (Meta), Nvidia and Berkshire Hathaway Warren Buffett.

At the same time, Tesla produces 20 times fewer cars than Volkswagen or Toyota. And Tesla earns almost 10 times less than the same Toyota or Volkswagen.

As you can see, the difference goes by orders of magnitude. It turns out a rather strange situation when people are willing to pay 20-30 times more for a dollar of profit, income or assets of one company than for a dollar of another company. But after all, in fact, this is the same dollar.

Let's add some specifics using the analysis of special metrics - investment multipliers.

The most commonly used metric is P / E (the ratio of a company's capitalization to a company's earnings), which shows how many dollars you have to pay per dollar of a company's earnings. So for a dollar of Toyota's profit, you pay $ 9, and less than $ 8 for a dollar of Volkswagen's profit. This indicates that the relatively fair price is in the $ 8-9 range.

Now hold your breath for a second, because the P / E for Tesla is 347. Yes, not 3, and not even 34, but 347 (!). Roughly speaking, when you buy Tesla shares at current prices, you pay on average 40 (!) More than other automakers.

But profit is a volatile category and is not a reliable metric. Let's look at an alternative P / S ratio (the ratio of the company's capitalization to the company's earnings), which shows how many dollars you should pay per dollar of the company's revenue (revenue). Less than a dollar is a dollar of revenue from Toyota (0.9) and Volkswagen (0.6). A dollar of Tesla's earnings will set you back $ 34. That is, again, on average, 40 (!) More expensive than when buying shares of other automakers.
But let's say that Tesla is just reaching the peak of its financial form and the financial results are not indicative. Let's look at another metric that makes it possible to imagine the following situation: what if the company is auctioned off, how much money can we, as investors, return in the event of its liquidation?

To do this, use the P / B ratio (the ratio of the company's current market capitalization to its book value), that is, how many dollars you have to pay for each dollar of the company's assets. Anything less than 1 indicates that the company is cheap, and anything above 1 indicates its high cost. A dollar of Toyota or Volkswagen assets will cost you a little more than a dollar. That is, the companies are valued relatively fairly. But in the case of Tesla, a dollar of assets will be worth $ 44. That is, again, we have a magic number exceeding 40 times.

What is the conclusion from all this analysis? Tesla isn't just overrated - it's insanely overpriced. The company's shares are on average 40 (!) Times more expensive than competitors' shares. How to make money on this information? The answer is obvious - sell Tesla shares. Actually, this is already being done by the entire management of the company, including the head of Elon Musk, who just this week sold Tesla shares for more than $ 5 billion.