On April 4, 2017 economic information sources of the whole world announced unexpectedly that Tesla company with its market capitalization[i] (it is one of the indexes which characterize the size of the company) had surpassed the size of capitalization of General Motors which up to that moment was the largest company of that field in the USA and thus, Tesla became the largest auto producer in the USA. Mildly speaking, such news can be considered impressive for relatively recently founded company, especially if we take into account that the company functions in the field of auto production where startups occur not often. Moreover, the company was able to compete with largest companies in the USA offering machines that work on electricity. But the strangest fact is that each one of three automakers (Chrysler, Ford, General Motors) annually produces several million automobiles but Tesla has not provided the sale even of half million machines during its existence.
Capitalizations of Tesla and Ford companies[ii]
Comprehending the phenomenon of Tesla company’s fast growth we shall reveal whether it is a normal process resulted by innovations of automaker or whether its shares are extremely overestimated because of great interest of participants of fund bourse towards the company. Will this fact entail new fall in the future or has the company made such an innovation which allows to rank it with the most expensive companies?
Actually the company is in the fourth place in the world by its capitalization stepping back only the giants of the field: Toyota, Daimler, Volkswagen, AG companies.
The largest auto producers in the world[iii]
| N | Producers of Automobiles and Trucks | MLN /USD |
| 1 | Toyota Motors | 174,000.00 |
| 2 | Daimler | 79,900.00 |
| 3 | Volkswagen AG | 79,300.00 |
| 4 | Tesla | 53,100.00 |
| 5 | General Motors | 51,500.00 |
| 6 | Honda Motor | 51,500.00 |
| 7 | Ford Motor | 43,800.00 |
| 8 | Nissan Motor | 39,700.00 |
| 9 | Tata Motors | 21,300.00 |
| 10 | Ferrari Motors | 15,700.00 |
| 11 | Harley Davidson | 9,700.00 |
The sales of the company
It is necessary to begin the disclosure of phenomenon of such an abrupt development from production. The company first attached the attention of auto world in 2008 by its Roadster racing model, which was sold in the USA for about 109.000 USD. The next was Model S sedan of luxury class in 2012, the most affordable variant of which costs about 69.500 USD. The latest product, which is planned to produce, is Model 3. The cost is already 35.000 USD. Despite the fact that the prices of models are reducing, the price is still relatively high and is not competitive compared with classical machines of inner fire engine of the same category. In late 2016 the company sold altogether 186.000 electric machines which, although the second index after Nissan company, is incomparably law from sales of the three American auto producers. In 2016 12.2 million machines were produced, that’s to say, the portion of Tesla was around 1.5%.[iv] It is conditioned by two circumstances; first, the machines of Tesla are not produced by conventional principle yet, which also conditions high prime cost and besides that, infrastructures of electric charge are needed for machines, which is well developed only in North America and partially in Europe. That’s to say, sales are also limited geographically.
Technical innovations
It is also necessary to stress the fact that batteries are one of the most expensive parts of machines. They have high effectiveness for only passenger-carrying machines yet where big, high-power batteries are not necessary. It means that the company cannot enter the market of trucks yet which also limits the activity of the company. To reduce the price of electric batteries the company used the rule of scale aiming at building the biggest factory in the world which already functions partially. It will provide electric batteries not only for the workshop of automobiles but also will sell them directly. It is envisaged that only that factory will be able to produce batteries to the extent that was produced worldwide till its start. The mentioned type of activity means diversification for the company. It is possible to consider that the company organizes its activity in the point of collision between energetic and auto production fields.
The automatic control system is also important innovation. It, though is in experimental stage, uses computer technology which is developed based on leading visual alarm and has neural net. The company has a leading role in this field and main rivals, based on radio positioning technology were long enough developing automatic control systems, which are not effective.
Finance
Deeper analysis makes it also necessary to observe financial reports the company’s financial reports.
The company accepts sufficiently tangible assistance from the US government, which according to marks granted around 4.9 billion dollars to the company in disregard of tax privileges in several states.[v]
In accordance with published reports of Tesla in 2016 the company had 7 billion USD profit and net loss up to 675 million dollars, in case when profit of General Motors was 166 billion USD and net profit 9.4 billion dollars. The comparison of actives also does not speak in favor of Tesla: the actives of General Motors surpass the latter 9.8 times. That is to say, numeral indexes confirm that General Motors is a mature company, but Tesla has not overcome the stage of formation yet.
From the above mentioned it is possible to conclude that a turmoil is really made around the shares of company and both material and not material actives of the company still don’t have such price to consider the company the 4th in the world.
The price of a stock of a share company is formulated by the final result of current prices of dividends expected from that instrument taking into account interest rate of discount. One share of the company cost about 313 USD at the moment of writing. During primary distribution, in 2010 the stocks cost 17 USD, that is to say the investors trust in the company and the innovation made by the latter.[vi]The stocks of General Motors cost just 32.5 USD in May 2017, that’s to say, it is obvious that the stocks of Tesla had significant growth in secondary market. If we take into consideration that the primary sale of stocks of company took place by 23 dollars and the stocks gained the main part of their price in secondary market, this may also confirm that speculative stock purchase and sale took place.vii However, it is obvious, that the company makes valuable innovation and the tumult, started in the course of stock sale, is merely a consequence of the chief direction of its activity.
Summarizing this it is possible to conclude that now Tesla is in high risk zone and the future of the company depends on the fact to what extent it will be able to maintain the ambitious promises given by its leader Elon Musk on popularization of production, conventional production, development of automatic control system and amount of sale given.
The trace of Tesla
Though the turmoil made around the stocks of company, Tesla has done huge work towards popularization of electric machines, and auto industry is in front of biggest changes. If during 90s of the past century there was no joint approach towards the questions how the future of auto industry would be and what kind of energy future machines would use; biofuel (it is made out from recycling plant materials), hydrogen, high pressure air, but now chiefly thanks to Tesla company it is already clear that if technologies develop with the ongoing tendency, future machines, most likely, will have electric engines, and consequently the end of inner fire engine century is not far. Gradually, the recharge price of the electric machines will reduce conditioned by the increase in the number of such machines. This, in its turn, will significantly reduce the price of travel and what is more important, in auto industry the humanity will pass from fossil fuel to recovering sources of energy.
[i]http://economictimes.indiatimes.com/definition/market-capitalization
[ii]http://money.cnn.com/2017/04/03/investing/tesla-ford-market-value-gm/, 17.05.2017
[iii]https://www.cnet.com/roadshow/news/tesla-is-the-most-valuable-us-automaker-according-to-market-cap/, 17.05.2017
[iv]http://www.oica.net/category/production-statistics/, 17.05.2017
[v]http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html, 17.05.2017
[vi]http://www.nasdaq.com/markets/ipos/company/tesla-inc-665410-63240, 17.05.2017
viihttp://www.investopedia.com/terms/s/speculation.asp, 17.05.2017
Author: Edgar Khachatryan. © All rights are reserved.
Translator: Sona Aramyan