In this June 22, 2012 file photo, Tesla CEO Elon Musk waves during a rally at the Tesla factory in Fremont, Calif.Paul Sakuma/The Associated Press
Mitchell Clark of Profit Confidential's statement about Tesla Motors is typical of what the company's cheerleaders are saying these days: "What (Tesla co-founder and CEO Elon) Musk is creating is entrepreneurship at its finest."
Now I am no expert on entrepreneurship and I know almost nothing about stock promoting. But I do know a thing or two about car companies. So when I noticed that Tesla Motors yesterday had a market cap of $17.6-billion (all figures in U.S. dollars), I about fell out of my chair.
Ford Motor, by contrast, had a market cap of $64.4-billion and Honda Motor was valued at $69.21-billion as of Monday. The Wall Street Journal put it this way: If BMW AG were valued like Tesla, the company would be worth about $725-billion. That is nearly three quarters of a trillion dollars, instead of BMW's current $60.3-billion.
Various commentators have called Musk a "golden boy." Some refer to Tesla as a great example of "the wealth curve that innovation creates." One commentator asked if Tesla is another "Amazon-style growth story" or a massively overvalued company being driven to astounding heights by investor gullibility? And then suggested the former.
Perhaps. What I can do is read and understand numbers and according to Google Financial, as of the end of June this year, Tesla had delivered 5,150 Model S cars; total Tesla revenues in the latest quarter were $405.1-million. Ford's revenue in the most recent quarter was $38.1-billion.
Ford is a viable global car company with a 100 year-plus history. Tesla? According to even its most ardent defenders, a fledgling venture with both upside and risk. I am not qualified to speak to wealth curves and innovation, to Amazon-style growth and investor gullibility. But after nearly 30 years of covering the auto industry, I can say that Tesla is not yet a full-blown car company. Not even close.
The flagship Model S electric sedan is an interesting curiosity that starts at nearly $80,000 in Canada. No doubt the car has been well received by the few reviewers and owners who have climbed behind the wheel. But it's a brand new model and not yet a high-volume car, which means Tesla has not yet had to deal with the realities of being a car company for the long term – no big warranty and service claims costs, no substantial recalls, no expensive legal defences of any sort, no real marketing costs and so on.
Big, established car companies have whopping costs associated with attracting buyers and supporting and servicing them. History has shown that even the best car companies suffer recalls and product glitches eventually. Tesla's turn will surely come and when it does, it will be expensive and painful in many ways.
Especially so given that Musk has been such a vocal promoter. He's said, for instance, that the upcoming Model X SUV will sprint from 0-100 km/hour faster than a Porsche 911. Chris Umiastowski, the growth investor for Globe Investor's Strategy Lab, recently noted that Tesla has high hopes for what it calls its third-generation platform or "Gen 3."
Umiastowski notes that Musk is saying Gen 3 "will be a compelling electric vehicle with a base price of about $35,000 and a driving range of about 320 km...Think about it: A vehicle comparable to a BMW 3 series, but at a lower sticker price and with free "fuel" for road trips. I think people will be lining up to buy them. If Tesla can deliver on its promises, it should be able to sell several hundred thousand Gen 3 vehicles per year."
The Wall Street Journal reports that during a recent conference call, Musk said there is "room for improvement" in BMW's i3 electric car. That's bold coming from a CEO whose company has sold just a few thousand Model S cars, compared to the 1.6 million vehicles BMW will sell around the world this year.
Still, Musk can find some solace in the top score of 99 out of a possible 100 the Model S earned in a recent Consumer Reports test. Jake Fisher, head of CR's auto testing, said the car "accelerates, handles and brakes like a sports car, it has the ride and quietness of a luxury car and is far more energy efficient than the best hybrid cars."
On the other hand, CR also said the Model S suffers from "limited range, long charging times, and coupe-like styling that impairs rear visibility and impedes access." And CR pointed out that "investing in a new car and startup company with no track record for reliability or resale value, and a skimpy (although growing) service network" is something that should concern consumers. I suppose investors, too, though as I said, I'm no expert.
As I wrote this month in Globe Drive, Tesla is about to face much stiffer competition in the EV business – competition from global car companies with track records who are investing billions in electrified vehicles. BMW is one of those companies. Toyota is one. Ford is one. General Motors is one. Honda is one. Volkswagen is one. And the list goes on and on. Heck, Nissan has sold more than 74,000 Leaf EVs -- more than all the EVs sold by other electric vehicle manufacturers combined.
Nissan and BMW and Ford and Toyota and all the rest are as committed to making electrified vehicles a success as Tesla. What's more, some of the executives and engineers inside of these companies would very much like to show the "golden boy" that they know things about the car business and EVs that Musk and his colleagues at Tesla have yet to learn.
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