PPositive news from Elon Musk’s pioneering electric vehicle (EV) company You’re here (NASDAQ: TSLA) continues with its latest production figures. Its deliveries exceeded analysts’ expectations of thousands of cars in the third quarter of 2021.
At the same time, its market capitalization remains huge, and alongside its loyal fans, the company has a large chorus of detractors predicting a stock price collapse. Are the opponents right, Tesla living on borrowed time before its stock price corrects to a more “realistic” level? Or will its value increase from here?
Both sides have a compelling argument, but the bullish case may be stronger overall.
Image source: Tesla.
Tesla’s production pace
Tesla released its production and delivery figures for the third quarter on Oct. 2, beating Wall Street’s consensus forecast of 233,000 electric vehicles. The company delivered around 241,300 vehicles, almost 3.6% more than expected, although it also notes that it is wrong in its reports, omitting deliveries that had significant problems.
Tesla pulled off this performance even though the continued shortage of chips hampered operations on the EV and internal combustion engine (ICE) sides of the automotive market in 2021. This better-than-expected performance fits the “massive trajectory” that the company has. Wedbush investment predicted a few days ago in a research note. Wedbush analyst Dan Ives has predicted total deliveries of between 890,000 and 900,000 Tesla automobiles in 2021.
Tesla’s auto production, in absolute terms, is a fraction of the production of ICE vehicles by major automakers. However, several important points are revealed by its production figures on closer analysis.
Tesla will soon produce 1 million cars a year using just two factories. However, Toyota engine Currently operates around 59 factories, producing 9.5 million cars per year, under 2020 parameters.
The comparison clearly highlights Tesla’s manufacturing efficiency, a point further underscored by Tesla’s Adjusted Gross Margin (AGA) of 29%, compared to Toyota’s approximate AGA of 24%. The latest production and delivery news also drew an Oct. 3 response from Volkswagen AGThe CEO of Ralf Brandstätter.
According to the German edition of Business Insider, Brandstätter pointed out how 10 hours is enough to build a Tesla 3, a third of the time it takes to build a Volkswagen ID.3. He also told an emergency meeting of German automaker executives that Tesla’s profitability and productivity were “in another dimension.”
With Tesla already producing cars more efficiently than current world No. 1 automaker Toyota, production is expected to increase even more sharply once its European “Gigafactory” comes online. Even with only its existing facilities to lean on, its third quarter deliveries were up 73% year-over-year from 139,300 produced in the third quarter of 2020.
Image source: Tesla.
A window on the valuation of Tesla
Tesla’s third-quarter delivery and production figures give some perspective on the company’s criticisms. For years (and today too), detractors have claimed that Tesla’s share price and market cap is grossly inflated from its current production numbers. They point out that it makes less than a million cars a year, while its market cap of around $ 776.6 billion exceeds the combined market caps of Ford engine ($ 56.6 billion), General Motors ($ 77.1 billion), owner of Fiat Chrysler Stellantis SA ($ 59.7 billion), Volkswagen ($ 135.3 billion), Bmw ($ 54.4 billion), and Daimler ($ 82.8 billion) by almost 67% – the facts they claim indicate it is massively and unsustainably overvalued.
With all of that in mind, why is Tesla’s valuation stubbornly staying above the levels that bearish commentators, analysts and pundits think it should have? The answer is a fundamental difference in perspective. The assessment is not rooted in Tesla’s current sales figures or other metrics in a direct battle against the big, long-established automakers, but in its potential and momentum.
Tesla’s valuation is absurd to bears and stock market skeptics, as they purely rate it as another standard automaker with modest production numbers competing on a level playing field, with no particular historical circumstances in its favor. From this perspective, a narrow and “literal” interpretation of its metrics, Tesla is indeed hugely overvalued.
Another view sees Tesla as the forerunner in a market revolution, with the current electric vehicle market representing only a tiny fraction of its emerging potential. While a massive historic pivot from ICE vehicles to electric vehicles is indeed underway, direct competition is not currently the source of Tesla’s robust value. Instead, it is based on the company’s success in increasing its production capacity while maintaining profitable margins.
The rapid growth in production, which accelerates over time and exceeds expectations even in the midst of a chip shortage, shows that Tesla is successfully positioning itself to claim significant market share once the “point. pivot “of the automotive market will be reached. At this point, if it occurs, a historic change will occur.
Electric vehicle sales will grow exponentially and ICE sales will collapse, as when cars decisively and swiftly took over from horse-drawn vehicles or horses in the days of Henry Ford. Tesla is notably at the forefront of production know-how and public recognition, so its value likely reflects its potentially powerful first-mover advantage when electric vehicle use takes off.
Time has yet to decisively prove which perspective is ultimately correct, that of Tesla’s detractors or its enthusiasts. However, the electric vehicle market persists and grows, making change inevitable.
When that moment arrives, Tesla is positioned to be among the top performing electric car stocks, with a potentially dramatic bullish outlook sending its market value much higher than today’s price. Ford’s or Toyota’s stock price is based on the present, while Tesla’s stock price expresses confidence in the future – confidence that arguably seems justified.
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Rhian Hunt has no position in the stocks mentioned. The Motley Fool owns shares and recommends Tesla. The Motley Fool recommends BMW. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.