A week after topping Ford Motor Co., Tesla climbed as much as 3.7 per cent in early Monday trading, boosting its market capitalization to $51-billion. Tesla and GM have jostled back and forth for the top spot in later trading, with the electric-car maker edging GM by about $3-million as of 2:15 p.m. in New York.
The turnabout shows the extent to which investors have bought into Mr. Musk’s vision that electric vehicles will eventually rule the road. While GM has beat Tesla to market with a plug-in Chevrolet Bolt with a price and range similar to what Mr. Musk has promised for his Model 3 sedan coming later this year, the more than century-old company has failed to match the enthusiasm drummed up by its much smaller and rarely profitable U.S. peer.
“Tesla engenders optimism, freedom, defiance, and a host of other emotions that, in our view, other companies cannot replicate,” said Alexander Potter, an analyst at Piper Jaffray Cos., who upgraded the stock Monday after owning a Tesla for seven months and meeting with management. “As they scramble to catch up, we think Tesla’s competitors only make themselves appear more desperate.”
Tesla’s usurping of GM and Ford will undoubtedly spur debate over the relative value of Musk’s company compared with some of the world’s top-selling automakers. GM expects to earn more than $9 billion this year and analysts predict Ford will generate adjusted profit of about $6.3 billion. On that basis, Tesla is expected to lose more than $950-million.
“Cash flow should determine what the value of a company is and our cash flow has been pretty good lately,” Joe Hinrichs, Ford’s president of the Americas, told reporters Monday in New York. “At the end of the day, we run the business to serve our customers.”
If Tesla closes at a higher valuation than GM, it will rank the sixth-biggest carmaker by market cap, behind Toyota Motor Corp., Daimler AG, Volkswagen AG, BMW AG and Honda Motor Co. While Tesla’s Chief Executive Officer Musk, 45, has a long way to go to match Toyota’s $172 billion market cap, Honda is barely ahead at about $52 billion.
“The market cares more about the potential new market value of the other businesses Tesla is in than about real profits and cash flow,” said David Whiston, an analyst at Morningstar Inc. “Right now there is nothing to slow Tesla’s momentum. They could pass Honda, too.”
Tesla has long been treated like a technology stock with investors betting on its ability to dominate a market for electric cars and energy storage. To those same investors, GM and Ford are headed for a slowdown in car sales that will erode profits.
“Is it fair? No, it isn’t fair,” Maryann Keller, an auto-industry consultant in Stamford, Conn., said of GM ceding the market-cap crown. “Even if Tesla turns a profit, they will eventually have to make enough to justify this valuation.”
GM has fallen from grace before, of course. The Detroit-based company filed for a government-backed bankruptcy in 2009 and returned to the markets late the following year.
At the height of GM’s power in the U.S., former CEO Charles Wilson famously said when nominated to be then-President Dwight Eisenhower’s defense secretary: “For years I thought what was good for our country was good for General Motors, and vice versa.”
Tesla delivered fewer than 80,000 vehicles globally last year to GM’s more than 10 million. Mr. Musk’s more-affordable Model 3 sedan, scheduled to roll out later this year, will be critical to his ambitions for Tesla to transform from niche carmaker into a mass-market manufacturer.
The Model 3 is expected to sell for about $35,000 and boast at least 215 miles (350 kilometres) of battery range per charge, marks GM achieved with the Bolt that began selling in California earlier this year.
“Tesla’s products have a captivating impact on consumers and shareholders alike; this advantage will be difficult to replicate,” Mr. Potter, the Piper Jaffray analyst, wrote in a report Monday. “Even if the Model 3 production launch goes badly, we think customers (and more importantly shareholders) will withhold judgment.”