It is just about possible to make sense of Tesla’s extraordinary valuation.
Ignore Elon Musk’s fanboys, who cheer on the electric-car company at any price. Make some rosy assumptions about Tesla Inc. capturing a large part of the world’s vehicle sales, making more profit from each sale than existing car makers and adding in a nice business supplying battery-backed solar installations. Dismiss all the challenges, and a share price of 211 times the paltry estimates for this year’s earnings could be justified, at a pinch.
But the stock market still has a problem.
If Tesla is a success, the rest of the industry won’t be. When someone buys a Tesla, they choose not to buy a Ford or a BMW . And shareholders are ignoring this most basic logic, pricing in success both for Tesla and for the rest of the industry.
The total market value of all other major U.S., European, Japanese and Korean car makers has risen in the past year, even as Tesla’s value rose eightfold to match them. Shares in Chinese and Indian car makers, perhaps less threatened by Tesla, have also risen, while Chinese electric-car makers have soared alongside Tesla.