Tesla Is Racing Ahead, But Is It Worth 17x BMW?

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Since our last update Tesla (NASDAQ:TSLA) And in October 2020, the stock of BMW, Tesla has risen nearly 2.5x, whose market cap has crossed the $1 trillion mark. On the other hand, BMW’s stock is up nearly 40% over the same period, with a market cap of about $65 billion. So how do the two companies compare in terms of delivery growth, margins, revenue and valuation metrics? View our analysis BMW and Tesla: A Detailed Comparison for more information. The excerpts of the analysis are summarized below.

Tesla’s operational performance has improved significantly compared to BMW. Tesla’s total deliveries grew at a compounded rate of 58% over the past five years to nearly 500,000 units, while BMW has seen its deliveries remain nearly flat over the period, as it sees a decline through COVID-19 . Given that Tesla hasn’t really been affected by the ongoing semiconductor shortage and projects an ongoing 50% delivery increase, it’s likely to surpass BMW by 2025 or so. Tesla’s gross margin is also now well ahead of BMW’s, at about 26% in 2020, compared to around 19% (adjusted for R&D costs) for BMW. Tesla’s margins are poised to grow even higher this year, as economies of scale improve and as it ramps up sales of its self-driving software. Tesla is managing its operating costs better, with both its sales and general expenses and research and development expenses declining steadily as a percentage of revenue.

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So clearly, Tesla is growing a lot faster than BMW, is on an uptrend on its margins, and its production and operating metrics are looking progressively better. However, with a market cap of about $1.1 trillion, is Tesla really worth about 17x BMW or effectively more than all the other major automotive companies? We don’t think so. We value Tesla at approximately $610 per share, which is approximately 45% less than its current market price. View our analysis Tesla Valuation:expensive or cheap for more info.

[10/5/2020] Tesla is worth 8x BMW. Does it even mean anything?

Tesla (NASDAQ:TSLA) The stock has risen more than 4 times this year and Tesla has a market cap of about $400 billion, compared to about $50 billion for BMW Group. Tesla also trades at a trailing P/S multiplier which is approximately 40x BMWs. This comes despite the fact that BMW’s revenue is about 5x Tesla, and its deliveries are about 6x Tesla. Does it even mean anything? Not entirely, but there are a few factors that support the valuation premium for Tesla, including its higher growth, expanding margins and rising software sales. In this analysis, we compare Tesla’s financial and operating metrics with those of BMW Group’s automotive business. We break down our analysis into revenue metrics, margin and cost metrics. See our full analysis BMW and Tesla: A Detailed Comparison for more information. The excerpts of the analysis are summarized below.

Tesla’s deliveries are a fraction of that of BMW’s, but it’s clearly growing in the US

Tesla’s total deliveries in 2019 stood at 370K units, compared to around 2.5 million units for BMW Group. Tesla’s deliveries have increased from about 32k units in 2014 to 368k units in 2019, a growth rate of more than 60% per year, partially driven by the launch of the Model 3 in 2017. BMW, on the other hand, has seen its total deliveries. (including Mini and Rolls Royce) increased from 2.1 million units to 2.5 million, a growth rate of less than 4%. Tesla has plenty of room to expand, considering that it still caters to the US market with just 4 models in its lineup, including the Model Y that was launched earlier this year. In comparison, BMW has over 10 model lines, with many variants. Tesla already sells more Model 3 vehicles in the United States than all of BMW’s luxury sedans, so this could be an indicator of its potential as it grows with new factories globally. In addition, Tesla also plans to offer increasingly affordable vehicles going forward.

Tesla’s ASPs have dropped from $95k in 2014 to $57k in 2019, and it is likely that number will fall further as the Model 3 and Model Y sales mix grows. BMW’s ASP has dropped from $47k in 2014 to $43k in 2019. Tesla’s automotive revenue has grown from $3 billion in 2014 to $21 billion in 2019. In comparison, BMW’s revenue has increased from $100 billion to $109 billion.

How Tesla’s Cost and Margin Metrics Compare to BMW’s

Tesla’s automotive gross margin was on par with BMW’s gross margin in 2019 of about 21%. Note that we are adding back R&D expenses to BMW’s reported gross margin, as the company considers R&D a portion of direct costs. Tesla is also making solid progress toward reducing its operating expenses. Selling, general and administrative (SG&A) expenses as a % of revenue were up 11% in 2019, down from 19% in 2014, as the company streamlined its retail operations. The metric for BMW has been in the 8% to 9% range over the same period. On the R&D front, Tesla has significantly reduced its expenses, with the metric falling from 15% in 2014 to 5% in 2019, bringing them roughly in line with BMW. As Tesla continues to double sales of self-driving software, cut battery costs, and builds a bigger scale with new factories and models, it’s very likely that its margins will grow further, eclipsing BMW. .

While Tesla is certainly selling more cars and doing so more efficiently, that doesn’t justify its sizable valuation premium over BMW alone. Investors are taking a long-term approach with Tesla, betting that the company’s innovative technology and CEO Elon Musk’s vision can help it play a bigger role in the future of the transportation industry. Stock makes sense at current valuation only if you believe in Tesla’s Mass self-driving leadership and it’s growing software-as-a-service sales Will translate into big profits down the road.

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