Tesla Worth More Than Toyota?

By Lloyd Graff

Tesla stock sold for $169 per share in June of 2019. People were wondering if Tesla was today’s DeLorean.  Its 2025 bonds were paying 7%.

Today, Tesla stock roared past $900 per share.  What happened in seven months, and what does it mean for the machining world?

Obviously, the short sellers got killed. The stock has a rather thin float for a significantly traded company, which makes it volatile. But even the doubters, and there are loads of them, must admit now that Elon Musk has done an amazing job in building a car company from scratch.

There were hot moments when cash was short, and he pushed everybody to work overtime to hit the production goals for the Fremont, California, plant on the mid-priced Model 3. Then he surprised most people by surpassing sales targets. He did the impossible again by building the enormous battery plant in Nevada and somehow putting up a huge plant near Shanghai and rolling the first cars out before the end of 2019.

Meanwhile, GM and Ford are lumbering along with their electric car plants in the Midwest, while Tesla is starting its European plant in Berlin.

I have always been a Tesla skeptic and never bought the stock, but now I must admit that Musk has an astounding track record on cars and somehow finds time to build his SpaceX dream into a viable entity, too.

Tesla Roadster 2020 Prototype

The aspect of Tesla which I think most people have missed is the amassing of data for producing a viable autonomous car. Tesla has had a few fatal accidents with its self-driving cars, but Musk, the supreme risk taker, evidently has made the calculation that getting to the end line first in both electric and self-driving is worth the damages incurred when screwballs push the envelope or fall asleep. Google’s Waymo has been much more conservative, avoided tragic accidents, but is a distant second to Tesla in data derived.

The Europeans like BMW and Audi, the cautious American car companies, and the ultra-conservative Japanese are way behind and stumbling. The $900 stock value of Tesla is the world waking up to the farfetched idea that Tesla may have a tremendous first mover advantage in both electric and self-driving vehicles that few people thought possible even a year ago.

It is possible that neither category becomes enormous, but it seems likely to me that at least one of them is the jackpot.

On the other side, Exxon stock is down 12% so far in 2020, and oil prices are sputtering. Electric vehicles gaining traction and, to a lesser degree, the rise of self-driving taxis, mean fewer machined parts.  In our machine tool business we see people hedging their bets on automotive work. It isn’t going away, but it certainly does not look like a growth business unless you are in the Tesla orbit.

Our customers who are heavy in auto and small truck are looking for diversification, which has pushed them into Swiss-type machining and away from multi-spindle screw machine work. The brutal competition for high-volume auto work has also forced our clients to take automotive expertise to other more appetizing areas.

Yet the conventional wisdom that automotive work is an idiot’s game may turn out to be wrong, too. The automotive supply chain’s reliance on China is showing itself to be vulnerable. The Trump tariffs, Chinese theft of intellectual property, the threat of the Hong Kong demonstrations spreading, and now the Corona Virus epidemic are exposing the danger of becoming too dependent on China outsourcing.

Despite Tesla stock hitting $900 on Tuesday, it would be a mistake to give up on old school gasoline vehicles driven by human beings, at least for the next 10 years.

Question: Is automotive work too risky to be in?

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3 thoughts on “Tesla Worth More Than Toyota?

  1. Miles Free

    A lot to explore here.

    I think that TESLA’s greatest accomplishment has very little to do with their technology. Just the fact that they are selling an expensive sedan in the top ten cars in the USA is a remarkable accomplishment. In August of 2018, TESLA’s Model 3 was the 5th best selling car in the USA. The GM Lordstown Plant closing was announced the following November, just a few months later. FORD had announced earlier that year (April 2018) that it was going to exit the car market- it only had one car listed in the top ten in August 2018.

    More recently, TESLA was #1 in Luxury Car sales in 2 Q 2019- Number 1! Without any marketing or advertising this company is number 1 in Luxury car sales??? Tesla accounted for 27% of US small and mid-size luxury car sales in Q3 2019!! That’s an accomplishment. Over 1 car out of every 4 sold in this segment? How did TESLA do that without the big sales and marketing and rebate budgets that the Detroit automakers rely on to move their cars?

    As far as worth more than Toyota, you missed the point that TESLA is easily worth more than the total of the Big Three from Detroit combined-TESLA market cap is ~ $164 Billion; compared to $104 billion for the three Detroit companies. It remains second to Toyota, however, who has a market cap of $227 billion. So a ways to go.

    Your 10 year sunset on Internal Combustion Engines (ICE) is probably in the ball park for the US market, we have grid, and we have power, and we have land for charging stations. It will be many years longer in Europe, where they have under built their grid, have VERY EXPENSIVE utility rates, and virtually no space for charging stations where the people and cars are..

    The issue our shops face with selling to the conventional Detroit automakers isn’t really about the decline of ICE or new technology. If they can design it, our shops can make it. To spec and deliver it on time. No, the issue is about the stupid purchasing games, unilateral contract terms, bad faith negotiations, as well as the court system in Michigan giving home field advantage to the Big Three. I wrote about this in your December 2002 issue of Screw Machine World, (Free Lunch Syndrome) and sadly, I can report, 18 years later, it hasn’t improved.

    Savvy precision machining shops are competing where their capabilities and performance are recognized, valued, and respected. Savvy shops are selling to customers that treat them as valued partners and solution providers in the supply chain. The exodus away from being abused by the Detroit companies has been ongoing since the turn of the 2000’s.

    Is automotive work too risky to be in? For the next ten years, as you posit, I think that the risk is less about the technology, and far more about avoiding the automotive companies that continue to unilaterally abuse their suppliers.

  2. Seth Emerson

    The China reliance thing is real. Hyundai has shut Korean plants due to shortages of China sourced parts. You need to sell when the market is ready. If you don’t have product, someone else might. I have seen a few folks asking if some of the auto accessories I supply just came from China. As in “recently”.

  3. Bob Ducanis

    Tesla is an interesting company. Miles’ comments are spot on with regards to Big-3 beating suppliers to death (thanks to Ignacio Lopez).

    There is a lot of controversy surrounding Tesla. Although the stock has had a tremendous run up the past 6 months, the stock took a hit this morning, down approx. 20%. The short sellers have been burned in the past 6 months, but the question is are they wrong? I dunno. David Einhorn, the notorious short-seller that runs Greenlight Capital Fund has a running feud with Elon Musk. Einhorn claims that there are some shady accounting issues with regards to accounts payable and receivable. Tesla’s SolarCity plant in Buffalo has come under fire for lack of progress in manufacturing their solar roof panels. The state of NY funded most of the plant in the hopes that it would spur employment at good wages. It remains to be seen if the promises will be fulfilled. Time will tell.

    I think electric cars will sell nicely in the future, starting with 2-car households. Most daily trips probably don’t exceed 40 miles or so, but when talking long road-trips, I think many are hesitant about the range of electrics and ability to recharge. People I have talked to love their electric cars (Tesla, Nissan, and BMW that I have talked to). In our town in central Florida, the gov’t issued cars for building inspectors and such are Nissan electrics. I see more and more charging stations popping up in public parking lots.

    But from what I have seen, Tesla is a significant minority as opposed to the BMWs, Mercedes, Audis and Porsches. Of course, you see the ever popular Ford F-150 and variations of its pick-up truck in every other driveway!

    Interesting times. I do believe that Spacex is an incredible story. They are launching their Falcon-9 rockets at a rapid pace from Cape Canaveral. I have seen the boosters come back to land at their return pad at the Cape. Fascinating stuff indeed.


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