Tesla sold 50 000 cars last year, and have a $28bn market cap. Ford sold 6 million vehicles, had the fourth best selling car in the world (the Focus), and have a market cap of $51bn.

So Tesla:Ford ratio on market cap is 1:2, but on sales numbers it's 1:100. Granted, the Model S is more expensive than an average Ford, so let's call it 1:50.

How is that undervalued? It looks pretty darned overvalued to me.

Difference in company maturity, same reason startups get valued at higher multiples than public companies. Everyone knows what Ford is and for the most part doesn't think they have much of a shot to make enough significant changes to, say, 100x their revenue within 5 years. Tesla, on the other hand, has about as good of a shot at doing that as any public company, so to some investors its worth pricing that growth opportunity in.

>Everyone knows what Ford is and for the most part doesn't think they have much of a shot to make enough significant changes to, say, 100x their revenue within 5 years

You'd have to be insane to believe that Tesla is going to be making $400BB within 5 years.

Yes, there's some fudge factor when trying to estimate what a company like Tesla might look like in the future, but it still should be based on potential financials.

"Should" is a personal normative statement. The very nature of the market is that my "should" is different from your "should", which is also different from everyone else's. You are free to disagree with anyone and everyone, but the price is the price is the price, defined only by the prevailing "should"s of the last two people who came close enough to agreeing on the current price to actually make a transaction. In fact, the only reason that transaction went through is because those two "should"s fundamentally disagreed on the future price, or they wouldn't have taken opposite sides on that transaction.

> How is that undervalued?

If you believe that electric and autonomous car is the future and that Tesla will dominate the electric and autonomous car market, especially starting in 2020 already selling 1 million car a year with 2 new even more affordable models ?

Not saying that is realistic, but if you are buying the stock of the global number 1 car maker of 2030, that is probably a good deal.

Goldman isn't making the $2b investment in Tesla - they are being paid by Tesla to manage the sale of $2b worth of new shares to the public.

That said, I think its very unlikely there is any link between the offering and their analysis.

Any link between the offering and the analysis would most likely be in violation of Insider Trading regulations. Both their work on the deal, and their research department's analysis would be considered material non-public information, and thus couldn't be shared with the other group, until publicly announced.

Just the kind of thing GS seems to get fined for on an annual basis...

the big assumption is that they will deliver the car at a profit.

"they're selling at a loss but making it up on volume"

How's that possible?

It's a joke

Economies of scale[1].

A simple example is, imagine making pizzas for your neighbors, and it takes you 15 minutes to make dough for 1 pizza, and at a $10/hr wage, that's $2.50 per pizza in dough labor costs. Now, imagine it only takes you 20 minutes to make dough for 5 pizzas. That's $3.33 in dough labor costs for 5 pizzas, or $.66/ea.

1. https://en.m.wikipedia.org/wiki/Economies_of_scale

You should read catch-22.

What in the world does catch-22 have to do with economies of scale, and why the down-vote (if that was you)?

Milo Minderbinder immediately came to mind for me too.

https://en.wikipedia.org/wiki/Milo_Minderbinder

It's a quote from the book and no it wasn't me.

Right, but that only means you generate less revenue while selling at a loss.

No. It means that at the 5 pizza scale, if you're selling your pizzas at $5 (assuming $3.00 ingredient and labor costs other than dough), rather than a $.50 loss per pizza ($5.00 - $3.00 - $2.50), you're now making a $1.34 profit per pizza ($5.00 - $3.00 - $.66).

But the stated premise is that they're selling at a loss. Economies of scale don't permit you to generate profit while selling at a loss.

The point of an economy of scale is that, once reached, it can lower costs (think quantity discounts), which means what was a loss at lower quantities can become a profitable business.