Tesla Stock Valuation Question

Disclosure: I don’t own any Tesla and am not short Tesla… no affiliation in any way.

Question from my friend: “Thoughts on Tesla?”

My answer: “Vastly overpriced, sell it if you own it.
GM did $137b revenue last year and has a $60b market cap. Each $1 of market cap buys $2 revenue.
Tesla did $25b revenue last year and has a $768b market cap. Each $1 of market cap buys $0.03 revenue.”

His reply: “I agree and I used to think the same based on these calculations, however it seems different with Tesla. It seems like the company is evolving into a giant green tech company and not just cars. And now with the democratic government in power I think they will land some major green contracts. The company is not profitable atm but it looks like they are using their rising share price to sell stock, raise cash and re invest in the business in all areas that they need to in order to become this giant green tech company. It seems like they are laying the foundations to becoming more than just a car company and that’s what people are banking on.Thoughts?
Btw I don’t own any Tesla shares. ”

My reply: “The most important metrics in any company are revenue and profits. Profits can sometimes grow quickly, revenues generally are much harder to grow. For Tesla to be worth it’s valuation, it needs to grow it’s revenue at least 25x…. an extraordinarily difficult and rare achievement. Maybe it will do it. There is a lot that can go wrong in the meantime… a missed sales quarter, Elon gets sick or dies, a product that accidentally kills someone, a bad review by consumer reports, or a million other things.
Stock investors mostly don’t understand revenues and profits. They just invest based on companies they hear people talking about or hype. Tesla has the most hype of any company in history so far. But hype can die quickly.”

Published by

Joel Gross

Joel Gross is the CEO of Coalition Technologies.