Nishant Malhotra Founder of Middle Road OPC Pvt Ltd & The middle Road platform on the evolving Sustainable Finance sector

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Electric Vehicles; Tesla and Toyota

Tesla recently became the leading automaker in the world based on market capitalization. Tesla share price was trading at 1389.86 at an EPS of -0.81 at a market capitalization of $257.784B. The stock has risen by ~467 per cent over the last one year till today. It overtook, Toyota which was trading at $126.98 taking the market capitalization at   $174.413B. The quoted Tesla price is from Nasdaq while Toyota is from NYSE. Toyota trades at a PE of 7.64 and at earnings per share (EPS) of 16.36 highlighting the impeccable track record of performance of its share and has an asset size of $490.18B (1USD=107.47) (30/03/2020) against Tesla’s $34.30B (30/12/2019).

The upside for Tesla stock is the premium investors are paying for the electric vehicles. According to Yahoo Finance, Tesla trades at a forward price to earnings PE multiple of 298.41, a substantial industry’s average forward PE of 27.49. It’s a spectacular comeback for Tesla which many analysts sometime back had written off. One of the reasons is the production in China for the electric cars took off in December 2019. The electric car segment is still dominated with likes of China, the US and Europe with China dominating the number of electric cars sold. Tesla revenues trailing 12 months is ~26.02B.

However, the recent surge in stock is buoyed by irrational exuberance in the US equity markets. Backed by trillions of dollars as stimulus, the upside in Tesla’s stick is more driven by sentiments rather than fundamentals driven by technical innovation of Tesla’s engineering in the electric vehicles. Toyota on the other hand remains one of the safest stocks known for its cutting-edge techniques in process re-engineering through total quality management etc. Toyota pioneered Toyota Prius, a full-fledged hybrid car and one of the most respected vehicles on road. Prius which signaled the future of electric cars, has sold until now 15 million hybrids globally with 4.3 million of Prius until 2018. How Tesla’s will tide through the post COVID-19 era remains to be seen. Tesla’s dominates the plugin electric cars model through Model 3 and registered  sales of 367,000 and 368,000 units in 2019, with United States as its key market. China and Europe esp. Netherlands which contributed $1.6B to the $24.578 B of revenues in 2019 revenues for Tesla are other important markets. Tesla’s new factory at Shanghai, China makes 3,000 cars per week and with plugin car segment slowing in China, backed by slowdown globally due to the pandemic, the sale of electric vehicles especially electric cars might be limited due to the mindset of consumers in many emerging markets.

Although Tesla’s future looks promising, its stock price is at unsustainable levels and might go through a correction phase. Electric vehicles need a substantial inflow of infrastructure improvement which among the Asians countries except Japan, China and Singapore looks daunting. Toyota still remains the most valuable automobile maker with annual revenue of ~$278.5B, the markets have given a thump up to sustainable energy and electric vehicles by a huge margin.  Whether this margin is tenable remains to be seen?

Figures calculated from Yahoo Finance; B: Billions

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