TESLA: the new colossus of the US automotive industry

TESLA MOTORS is the new leading company in the automotive industry. Its activity is supported by strong investments in the research in energy innovation and it is one of the first companies to introduce an innovative idea of driving experience.

The Company was founded in 2003 by a group of engineers in the Silicon Valley, included the actual CEO Elon Musk, one of the most powerful business magnate in the energy industry and a strong supporter of Donald Trump. Their drive was to prove that an electric car could be able to even perform better than a gasoline powered one. Tesla’s declared mission is to accelerate the world’s transition to sustainable energy. Today we can say that they did it!

In July 2016 Tesla and its strategic partners, including Panasonic, have inaugurated to unique gigafactory in Nevada, receiving around $1.3 billions as tax break from Nevada and hiring 22.000 new workers. The expectation for the 2018 is that the gigafactory will produce more lithium ion cells than the total world output gained in 2013.

@Steve Jurvetson/flickr.com

One of the most remarkable events in the epic history of the American colossus is the power that Tesla has acquired during the last seven years on the New York Stock Exchange, even if the financial results of last years were not nearly as big as the profits of the main competitors in the American automotive market.

During Tesla’s IPO in the faraway 29th of June 2010, the share price was $17, at the beginning of December 2016 it was $182 and today the stock value has increased by more than 70% in four months reaching $310 each. Considering the last ten days Tesla has become the most valuable US carmaker exceeding the capitalisation of the competitors General Motors and Ford, driven by the leading top manager Mary Barra. The Company’s market capitalisation at Wall Street has grown to $51,5 billions passing over the $50,1 billions of GM and the $44,7 of Ford.

The graph below shows a comparison between the share prices of the three main US carmakers. General Motors, outlined in red, on the 11th of April presents a price of $33 per share and Ford, in blu, of 11$ each.

Graph 1. Share Price from Dec 2016 up-to-date. Data from Investing.com

This looks incredible if we consider the annual Income Statement of Tesla. Analysing the 2016 final income statement of the Company, it reveals a net operating loss about $670 millions ($720 in the 2015) and also the expectation for the next quarters are not so optimistic with respect to net income. Comparing this financial situation with the one of General Motors and Ford it is hard to find an explanation of the behavioural trend of the Tesla’s market share. Ford’s net income for the year 2016 was around $4,6 billions and its expected to grow to $6,3 for this year such as the total expected $9 billions for the American GM.

Another strange and significant indicator is the number of sold cars in the market: during the 2016 Tesla has sold 76k vehicles, a moderate amount if compared to the 2,6 millions units sold by Ford in the same year. The American automotive market counts around 17,5 millions of cars/year, the Tesla delivering of 25.000 units in the first quarter of the 2017 seems just an initial result considering the average of 200-300 units/months delivered by GM and Ford.

In the view of this context, why Tesla is so dominant on the New York Stock Exchange? The authentic reason could be found under a behavioural point of view: the shareholders strongly believe in the talent and the future of this Company. Even if the first financial results are not so satisfying; they trust the business and the investment project planned for the next few years of Tesla. Just to give some example Tesla would like to reach to target of 5000 units/week at the end of 2017 from an actual 2000 units/week producing the Model S and Model X and the desired objective is to produce 10.000 units/week at the end of the 2018 thanks to the new Model 3, a $35.000 car designed to attract also the low-medium consumers’ target. Taking into consideration the investments financial plan, the total investments during last year were almost $1,3 billions and the only plan for this first 2017 semester passed the previous with an expectation of total $2-2,5 billions.

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