
Ask HN: How in the world is $TSLA worth more than $TM? - Spinosaurus
Tesla is now worth more than Toyota, and yet has pretty much lost money every quarter. Toyota, on the other hand, has had billions in profit every quarter for years.<p>https:&#x2F;&#x2F;www.macrotrends.net&#x2F;stocks&#x2F;stock-comparison?s=net-income&amp;axis=single&amp;comp=TM:TSLA<p>Is there a reasonable explanation for this, or is it a complete bubble?
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alexmingoia
Stock prices do not reflect future earnings or company fundamentals, despite
popular belief. The price of tradable assets with zero possible earnings
demonstrate this.

Stock price is purely a function of supply and demand, and the demand does not
have to be based on any sort of rational expectation of earnings. Price
psychology is the biggest factor in my experience. People often buy for no
reason other than the price moving up, which creates a cycle of upward price
pressure which continues until enough decide to sell to take a profit, or
there are no more buyers. This usually has little to do with company
fundamentals like earnings. Day trading is pretty much based entirely on this
logic, looking only at price and volume.

The lack of past profit actually fuels a higher price for Tesla, because it
allows for imagining bigger profits in the future. A company that has a
history of profits leaves little to the imagination. The story matters more
than reality.

At the macro level, yield had dried up everywhere but stocks, combined with
the Fed giving money to prop traders and signaling that they will buy junk
assets and attempt to stop the market from crashing through any means
possible. The market has become saturated with day traders and swing traders
(retail and institutional) looking for volatility and price movement more than
earnings or fundamentals, and newer stocks like Tesla attract them over
established stocks like Toyota.

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ksec
If you believe in all of the following,

Model Y, Semi, Truck and Model 3 will being in 5x the revenue, RoboTaxi, Lv5
AV coming in anytime, Tesla has the largest Battery Manufacturing Plant on the
Planet, Tesla has 5 years lead in Battery Production, SolarCity taking over
Solar Energy production, Elon Musk.....

But Yes... I still dont understand how on earth is it worth $200B.

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rich_sasha
Agree, but would extend: company “value” as in market cap is also affected by
other things, notably debt; given two identical companies but one with more
debt, it will have lower market cap.

There is a bit on this here: [https://mondaynote.com/tesla-and-apple-
valuation-questions-c...](https://mondaynote.com/tesla-and-apple-valuation-
questions-cdb95ffcf0a1) apparently for Ford it’s pension liabilities are more
than 2x it’s market cap; so if you were to exclude them, the company is worth
3x more. Tesla, as a young company (and born in a different era) doesn’t have
such liabilities. Etc etc

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refurb
Because stock prices reflect future earnings, not past earnings.

Basically, people buying TSLA stock believe future sales will be larger than
Toyota.

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woah
Many of them believe that Tesla stock will somehow get them a piece of spacex.
Many more are just following the price.

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ksec
I have seen that floating around. Is there any reason why this is being so?
They are just two different companies belong mostly to the same person.

Why would owning Tesla gets your SpaceX?

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Spinosaurus
It doesn't, at all. I've heard suggestions that great news coming out of
SpaceX does impact Tesla, but not the other way around. Plus, SpaceX isn't a
public company.

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nine_zeros
Is there even a meaning to the stock market anymore? Share prices are running
on a greater fool theory, aided by long term capital gains and the "reinvest
in growth" charade, which will inevitably peak out. Everyone's just waiting to
time the peak.

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h2odragon
Seems insane to me. For some time its been my opinion that "the markets"
weren't connected to any reality I can see. From my hilltop in the woods I
don't see far; so that doens't necessarily signify much.

From my limited perspective it sure looks like there's so much play money
seeking return that "brand recognition" is the only real reason to choose
between one offering and another.

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Spinosaurus
I wonder how many individuals received one of the recent stimulus checks and
parked it right into Tesla stock.

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xkjkls
Probably all of them followers of Dave Portnoy.

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playingchanges
I wonder what the perception of Tesla will be in a few years when people start
wanting to upgrade / sell these cars. I can’t imagine the resale being
comparable to a Toyota. There is certainly a reason Toyota is the worlds most
popular auto manufacturer, and it is very different from the reasoning people
use to justify Tesla bullishness.

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throw51319
Yeah true... there will be a glut of used cars. Therefore more people can
afford to get a used one, which will lower the brand premium they've been
enjoying.

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haltingproblem
Company "worth" is calculated as: last sale price * number of shares
outstanding

stock is held by founders and fans ==> few sellers

more buyers than sellers ==> stock price goes up ==> inflates worth

Company worth is an imperfect metric at best and non-sensical at worst.

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aeternum
I've heard this argument many times, but consider that _everyone_ holding a
share has the option to sell at the market (last sale price) and are choosing
not to. That seems like a pretty fair way of calculating worth.

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haltingproblem
Good point.

Stockholders are not _free_ to sell, technically or for practical purposes.
Many stockholders are under restrictions to hold like employees, founders,
index funds etc. Most non-index institutional holders have to hold TSLA if
they want exposure to Automotive, EV, Battery industries. There is simply no
option.

On non-technical restrictions, what do you think will happen to TSLA,FB or
AMZN stock if Musk, Zuck or Bezos started dumping their holdings respectively.
The stock holds up precisely because the the founder is holding it. Necessary
but not sufficient.

Finally not everyone who wants to sell can avail the last price. Every bid
taker (seller) causes a price impact. This has been explored extensively by
academics in Market impact models and Optimal execution of block trades. See
[1] and [2]. This is the financial econometric model of "a rush for the exits
will cause a stock to crater".

Last price is imperfect but not useless. Depends on how much signal vs. noise
you attribute to the sale price in the value discovery process.

[1]
[http://tuvalu.santafe.edu/~jdf/papers/mastercurve.pdf](http://tuvalu.santafe.edu/~jdf/papers/mastercurve.pdf)

[2]
[https://www.math.nyu.edu/faculty/chriss/optliq_f.pdf](https://www.math.nyu.edu/faculty/chriss/optliq_f.pdf)

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bryanlarsen
It's not.

Enterprise value of Toyota: $318B

Enterprise value of Tesla: $205B

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jackson1442
According to the NYSE, the market cap of $TM is $171.88B and $TSLA is
$205.88B.

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bryanlarsen
That's the point. Market cap is only a portion of enterprise value.

[https://www.investopedia.com/terms/e/enterprisevalue.asp](https://www.investopedia.com/terms/e/enterprisevalue.asp)

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lootsauce
It isn't worth that much. It is however successful at making its stock price
go up. These are not the same thing. If one share trades hands at $0.01 above
the market then the market cap is outstanding shares * new price. Tesla has
something like 185 million outstanding shares. That means a 1 cent change in
price nets the market cap of the company 1.85 million. $0.01 = $1.8 million.
Does that seem like a reality based means of setting the value of anything?
It's about human psychology in the setting of a game at that moment. I would
not take a linear extrapolation of that as a meaningful metric of the value of
a company.

You can go down rabbit holes of apparent market manipulation, seeming
fraudulent financial statements, an unquestioning media, toothless and out to
lunch regulators, bubble inducing liquidity pushed by central banks but that
stuff doesn't matter until it does. See Wirecard, Enron, Et al.

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tinus_hn
Do you think the future is cars running on fossil fuels, or electric cars?

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xkjkls
That's not the question though. Even if you believe EVs are the future, you
still have to convince people that Toyota can't make them.

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tinus_hn
Why would you have to convince anyone? If you believe Tesla is better
positioned for the future than Toyota, buy Tesla stock and not Toyota stock.

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xkjkls
Because valuations should be debated? How else is anyone going to come to a
good judgement?

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doopy-loopy2
what's your time horizon?

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imnotreallynew
Speculation, incredible liquidity in the system, etc.

That would be my guess.

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qwerty456127
Perhaps because Tesla is less bloated? Buying shares in an old big corporation
feels like hiring the Vogon bureaucrats while investing in Tesla and SpaceX
seems like paying young smart people for getting up-to-date things done.

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Spinosaurus
> Perhaps because Tesla is less bloated?

Is that simply a perception you think many might investors have? Tesla has
lost money every year, while Toyota has showed substantial profit. Without
knowing anything else about these companies, an outside observer might think
Tesla was the "bloated" of the two.

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qwerty456127
I don't know the proportion of investors who think this way yet I simply can't
believe there is going to be much place for non-electric cars in cities in
future. So, given how strongly do electric cars associate with the Tesla
brand, I find it improbable that Tesla is going to fail or stagnate. Cities
probably are going to start phasing gas/diesel cars out as soon as they
recover from the CoV-caused economic crisis or shortly after. I know Toyota
also builds electric and hybrid cars but many consumers don't know.

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xkjkls
The company has never made a profit. Why do you think it is impossible for it
to fail?

