Tesla’s share price has nose dived and it could get worse

It’s the world’s most valuable car company despite making a fraction of the vehicles and profits of the major makers. But is the house of cards collapsing?

The world’s most valuable car company is now a lot less valuable.

Tesla’s share price continues to tumble, slashing hundreds of billions of value off the electric car maker – and making billionaire chief Elon Musk a little less wealthy (about $US77 billion less wealthy).

Since peaking at $US883 per share in January, the value of the world’s biggest electric car maker has dived 36 per cent – or almost $US300 billion – to $US563 per share. That’s about $392 billion in our money.

The new Tesla Model S is one of the world’s quickest cars.

Tesla’s late January share price gave the company a market capitalisation of $US848 billion – or more than $1 trillion – and ranked it as one of the most valuable companies in the world. It was briefly worth more than Facebook.

To put the Tesla share slump in perspective, the value by which it dropped is more than the combined value of Volkswagen ($US123b), General Motors (US79b) and Ford ($US49b). And it brings Tesla’s most recent $US540b market capitalisation to a bit over double that of the world’s second most valuable car maker, Toyota ($US239b).

The arrival of the more affordable Tesla Model 3 has boosted the company’s sales.

Between Volkswagen, Ford and General Motors they sold a bit over 20 million vehicles in 2020 across brands as diverse as Volkswagen, Porsche, Lamborghini, Audi, Bentley, Skoda, Bugatti, Chevrolet, Cadillac, Buick, Ford and Lincoln.

In comparison, Tesla sold 499,450 cars in 2020 – a record for the brand – and posted a profit of $US721 million.

As economists point out, that gives Tesla a price-to-earnings (PE) ratio of around 1000, many multiples that for the Commonwealth Bank (20) and BHP (almost 13), which between them are worth less than the value Tesla has shed over the past six weeks.

There are plenty of high-quality Tesla rivals hitting the market now, including the Porsche Taycan.

But there’s a catch with Tesla’s profit: $U$1.58 billion of Tesla’s earning came from other car makers paying for regulatory credits, which in turn helps them avoid a fine that would be larger than the amount they paid for the credit.

Without those credits, Tesla would have made a loss.

And those credits won’t be around forever, something Tesla acknowledges. Rival car makers are less likely to need them because they are beginning to ramp up manufacturing of their own electric vehicles.

Ford has people queuing for its Mustang Mach E, Porsche has had enormous early success with its Taycan and Volkswagen recently announced it would accelerate its EV strategy that includes the popular ID.4.

The Fisker Ocean is yet to make it into showrooms.

All reasons why investors may be cooling on Tesla stock, which to be fair has made plenty of people rich with its stratospheric gains over recent years.

Then again, there’s still plenty of investor interest in EV start-ups.

Nikola and Fisker each have a market capitalisation of $US6b without building a single saleable vehicle. And Lordstown, which is also yet to build a car and will only sell to fleets, is worth $US2.7b according to the stock market.

Rivian is backed by big name companies such as Amazon.

Rivian – which featured its electric pick-up trucks in the Ewan McGregor adventure series Long Way Up – is gunning for a $US50 billion valuation with a planned float late in 2021, shortly after it ramps up manufacturing.

Originally published as Tesla’s share price has nose dived and it could get worse