Markets Crown Tesla the Big EV Winner, but Won’t Pick the Legacy Losers
Tesla’s stellar operating results in its most recent quarter followed by a deal with Hertz to deliver 100,000 electric vehicles (EV) by the end of 2022 sent its market cap soaring past $1 trillion1 and solidified its place in the minds of analysts and investors as the undisputed and unsurpassable leader in EV and battery technology at least through the end of this decade despite a big push into EV by legacy automakers.
Not bad for an upstart carmaker that will sell just 850,000 vehicles this year in a 90-million-unit global auto market. But markets aren’t rewarding Tesla for what is has accomplished, as impressive as that is; they are salivating over what it is widely expected to do over the next 5-10 years.
Much of Tesla’s market value is attributable to its battery technology and the software revenues to be derived from self-driving vehicles, with analysts ascribing anywhere from 30%-50% of Tesla’s current market value to its businesses other than vehicle sales. Still, if “only” $500 billion of value is attributable to its EV business, Tesla is still the most valuable OEM in the world by far — with a miniscule 1% market share of global auto sales this year. Going along with this nosebleed valuation are some lofty expectations about Tesla’s EV growth and dominance in the years ahead.
You don’t have to be an expert in EV technology to recognize that when a disruptive newcomer enters a mature, low-growth industry and is poised to take significant market share from incumbents, there must be losers. The global automotive industry essentially operates as a zero-sum game; that is, one player’s gains are another’s losses.
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