Tesla’s rapid ascent to the most valuable automaker in the world marks the beginning of a new era for the industry, one in which expertise in digital technology and electrification will be the critical factor for success, not the manufacturing efficiency that made Toyota the industry’s leading company for the past 25 years.
Among the leading automakers, Tesla’s new pre-eminence parallels Microsoft passing IBM in the 1980s — or General Motors eclipsing Ford nearly a century ago. The difference today is that investors look at Tesla as a software- and data-driven company while traditional automakers such as GM and Toyota are seen as more focused on hardware and machinery.
How investors value Tesla
Investors have placed an unusually high premium on Tesla over its more traditional competitors, in such areas as value per vehicle sold, value per dollar of revenue and forward price-to-earnings ratio.
Auto industry’s turning point
In April 2017, Tesla overtook General Motors to claim the largest market capitalization among U.S. automakers, marking the first time in the era of the modern automobile that that mantle was not held by one of Detroit’s “Big Three.”
In late June 2020, Tesla zoomed past Toyota to become the most valuable carmaker on the planet, its value now eight times that of General Motors…
Toyota passed General Motors in value 24 years ago, in June 1996. The Japanese automaker remained the world’s most valuable until June 29, 2020, before the phenomenal pace of Tesla share price rise shot the market cap of the California electric car maker to the top.
Tesla’s stock outruns its sales
Tesla’s revenue has grown steadily since the company had its initial public offering in June 2010. So, too, has its share price, although the stock has often been more volatile than those of traditional automakers such as GM and Toyota.
The rapid run-up in Tesla’s share price and concurrent rise in valuation don’t reflect the disparity between its revenue — $24.6 billion in 2019 — and that of Toyota ($280 billion) and GM ($137 billion). Tesla also produces a fraction of the vehicles built each year by the two auto giants.