Question
Can someone please help me with this Tesla raised eyebrows again in 2017, as its market valuation (price of all shares) exceeded its much larger
Can someone please help me with this
Tesla raised eyebrows again in 2017, as its market valuation (price of all shares) exceeded its much larger rivals, traditional car manufacturers General Motors (GM) and Ford (see the article below). Tesla produced 76 thousand cars in 2016, as compared with GMs 10 and Fords 6.6 million. That means that Tesla has a production volume of 0.76% of GM.
Yet the market valuation of $51bn exceeded GMs $50.9bn. It looks like the acquisition of Solar City, although a drag on Teslas finances, didnt hold its share prices down for long.
When looking at the profits Tesla and GM generate, the questions are even bigger. Tesla has accumulated $1.9bn over the last three years, while GM had a net profit of $23bn over the same period. Looking at the problem from a cash flow perspective, Teslas value shouldnt be anywhere close to $51 billion. It should actually be negative. However, using cash flow valuation method isnt the best way to approach this problem, as the losses were accompanied by strong expansion in the electric car market, and the valuation is a reflection of investor belief in a bright future of the company. And at the same time, they dont seem to have the same optimism for GM and Ford. Their valuation is much lower than the profits would suggest. To see why, just compare GMs profits and valuation 23.9bn profits over 3 years and a value of 50.9bn. That would suggest that GM is able to make as much money as it is worth in just over 6 years, or close to seven, if discounting is used. The only way to explain it is that investors are expecting profits to fall very quickly.
Your task is to find a similar case to Tesla, where there is a clear disparity between profits and market valuation. The company might be publically traded or (which would be preferable) recently acquired for a price not explainable by its profits.
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