The fascination surrounding Tesla and its founder Elon Musk is intriguing at best, troubling at worst, especially if you are Ford and General Motors.
Adding insult to injury, the stock market valuation of Tesla surpassed Ford and GM earlier this month, despite Ford and GM far outpacing Tesla in sales. Since April Fool's Day, Tesla's stock has breached $300 a share and continues to hover in that vicinity, causing a market capitalization of around $48 billion. Headline writers breathlessly proclaimed that Tesla is worth more than Ford. A few days later, another uptick in the stock market caused Tesla's market cap to briefly exceed that of General Motors.
Research firm Frank N. Magid Associates took a look at the three companies to try to determine whether the valuation is based on reality or emotion.
“Tesla has created a powerful and compelling brand story that connects with consumers,” says Aaron Hoffman, VP product innovation, at Frank N. Magid Associates. “They position themselves from top to bottom as a different kind of car company, from their CEO to the staff who work their showrooms.”
For those familiar with the brand, Tesla’s models are far more appealing (50% more on average) than any of Ford’s. Unsurprisingly when it comes to actually purchasing, the typical consumer is likely to choose a Ford, most likely because of the high Tesla cost-point. Simply put, the Tesla models do not seem accessible to the typical car shopper.
Higher appeal and greater emotional connection for Tesla cars contrast with the brand’s low familiarity for the typical car consumer.
Those of us who have been covering the industry for a long time are still waiting for the other shoe to drop regarding Tesla. The company’s popularity has to level off at some point, especially if founder Elon Musk continues to shift his attention to send space shuttles to Mars.
“They benefit today from a relatively small and tightly controlled distribution system with a high degree of corporate control,” Hoffman says. “They also are largely being judged — by Wall Street and consumers alike — on their promise and potential. The popularity is likely to level off, especially as the brand ages.”
As Tesla tries to shift towards a more mass-market position with the Model 3, at a much lower price point, it also will be a challenge to maintain their current perception as a premium brand, with maximum technological innovation, Hoffman says.
"The Tesla Model S is five years old and is seen as one of the most 'sophisticated, 'magnificent,' and high 'adrenaline' models within our data set -- and being the first model, has made the largest contribution to the perception of the brand," he says. "The Model X, which was available to the public in 2015 is decidedly less emotionally powerful compared to the Model S (in spite of its higher price point). As Tesla tries to shift towards a more mass-market position with the Model 3, at a much lower price point, it will be a challenge to maintain their current perception as a premium brand, with maximum technological innovation."
Bottom line: despite the exuberance behind Tesla's lead in solar and battery technology, the research company is calling “serious BS” on the relative valuation of Tesla versus two companies that together have sold around 860 million cars over a combined 223 years of production. Tesla, on the other hand, has been making cars for less than a decade and has sold exactly 22,252 cars in the fourth quarter of 2016.
Tesla, for all its energy and insight, is still just a startup, as Frank N. Magid Associates points out, and I tend to agree.