On a rough calculation, more than half of Tesla’s valuation is about something other than its fast-growing, profitable car-making business
Tesla stock rose 5% Friday after its chief executive officer tweeted late Thursday that he didn’t plan to sell any more shares. Regulatory filings showed a total of $8.5 billion worth of disposals on Tuesday through Thursday, and the stock fell 12% on Tuesday amid very high turnover.
The situation is complex given how Mr. Musk has also borrowed against Tesla shares, including to fund the Twitter deal, but investors can at least stop worrying about big near-term sales from the company’s largest shareholder.
The other worry for Tesla investors is vague but important: Tesla is a so-called story stock and Mr. Musk is by far the most important narrator. The electric-vehicle pioneer isn’t valued like other car makers, even accounting for its rapid growth and recent run of profitability.
One very rough way to quantify what might be termed the Musk premium is through so-called PEG ratios that adjust price/earnings multiples for growth rates, to more easily compare slow-growing companies with fast-growing ones. Using FactSet consensus analyst estimates, Tesla’s forward PE ratio equals to 3.3 times its expected annual growth rate through 2025. For best-in-class peer Toyota,
the multiple is 1.5 times, and for General Motors and Ford it is below one.
In other words, more than half of Tesla’s valuation seems to be about things other than the company’s suddenly successful car-manufacturing business. This could be the promise of its driverless robotaxis, which Mr. Musk hopes to start making in 2024, or its robot project Optimus, which he said last week would ultimately be worth more than both the car business and the driverless-car operation. The company seems to have enough investors that take him at his word.
The question is what they will think if he starts saying less about Tesla and more about Twitter. Of course, there is no immediate suggestion that Mr. Musk will start to neglect the car maker, which even after the share sales will account for the largest chunk of his wealth by some distance. His leadership of space-exploration company SpaceX shows his unusual ability to multitask. But just how much vision does one man have, and in how many different directions can it be focused?
Tesla investors have long benefited from Mr. Musk’s freewheeling spirit, but there could be another side to the coin.
Write to Stephen Wilmot at [email protected]
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