It is just not true that Tesla is worth more than GM in the common understanding of that. The real answer to "Why Tesla is Worth More Than GM" is one sentence: GM has more debt than Tesla.<p>People understand (and the article gives reasons why) "worth more than" to be that the GM brands + factories + assets + future prospects are worth less than Tesla brands + Tesla factories + Tesla assets + Tesla future prospects. But this is not true in actuality. This is because Tesla is worth more than GM based on Market Capitalization, not Enterprise Value. The difference between these companies is that GM has $51B in net debt while Tesla has $2.6b.<p>If GM wanted to be "worth more than Tesla" (using market cap), they could do it tomorrow by issuing $51B in new stock and paying off their debt. Why doesn't GM do this? Because they actually believe their stock is undervalued, and would rather buy their own stock than sell it.<p>Debt (leverage) is different across different companies. If you aren't familiar with how different debt levels affect the market cap, the following pages are worth a read:<p><a href="https://medium.com/@ruzbehb/tesla-is-not-valued-at-more-than-general-motors-and-ford-hint-enterprise-value-c89c2d21222e" rel="nofollow">https://medium.com/@ruzbehb/tesla-is-not-valued-at-more-than...</a><p><a href="http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/debt-effects-capital-structure.asp" rel="nofollow">http://www.investopedia.com/exam-guide/cfa-level-1/corporate...</a><p><a href="http://www.investopedia.com/terms/l/leverage.asp" rel="nofollow">http://www.investopedia.com/terms/l/leverage.asp</a>
Nothing to see here. The only thing the author actually says about Tesla is that they collect a lot of data from their cars. The only thing he indicates that may be useful for is self driving. Most of the text is just rambling about how awesome tech companies are and he obviously he doesn't consider GM or anyone in the auto industry to be a tech company either.<p>Really almost a content-free piece with respect to the headline.
Tesla is worth more than GM largely due to speculation that Tesla will be able to ramp up revenues, margins and cash flows unbelievably quickly and expand far beyond a car company. Whether or not they have any chance of doing this is unknown, but the market is a huge fan of Elon Musk given his history of delivering innovation.<p>Historically, betting on immense multiples of revenue and earnings on negative cash flow companies has not worked out on average, but Tesla may not be average.<p>Regardless, I wouldnt invest in either company. Autos have historically been a terrible investment due to large capital requirements, low margins, a cyclical operating cycle, ugly pension requirements, and fairly expensive labor... We shall see what the future brings.
A minor point, but "...because of things like online shopping, which has put hundreds of thousands of retail workers out of a job."<p>Makes me wonder... the method of product selection and delivery have changed from in store browsing and carry out, to online browsing and delivery. Instead of sales personnel and cashiers, it involves warehousing (to a larger degree) and delivery vehicles. Employment in sales/cashiers therefore would drop, while employment in warehouses and delivery companies would have increased.<p>What are the relative ratios? For every x retail jobs lost, how many y 'logistics' jobs are created? Once automatic warehouses and autonomous vehicles are pervasive, is it a 100% loss?
> How did we end up with a digital economy dominated by a few big players? The simplest explanation focuses on what are called network effects<p>The simplest explanation is that antitrust enforcement started to lag in the '80s and became seriously deficient after 2000. Electricity, oil, telephony also had network effects.
This reminds me of the many reasonable-sounding articles in the late 1990's that rationalized the sky-high valuations of dot-coms. For example:<p><a href="https://www.theatlantic.com/magazine/archive/1999/09/dow-36-000/306249/" rel="nofollow">https://www.theatlantic.com/magazine/archive/1999/09/dow-36-...</a><p><a href="https://hbr.org/1999/11/the-new-economy-is-stronger-than-you-think" rel="nofollow">https://hbr.org/1999/11/the-new-economy-is-stronger-than-you...</a><p>A few months after these articles were published, the stock market crashed... and it took the better part of two decades to recover.
> What’s more, where GM’s production led to eight jobs in its supply chain for every one person it employed directly, the ripple effects of the Big Five’s businesses, with the exception of Apple, are much smaller.<p>Would Amazon's ripple effect be pretty big too? All the products it sells have manufacturers (who have employees). Or is it better described by disintermediation, where a product that is sold via Amazon now would have been sold via brick & mortar before?
It remains to be seen whether Tesla will be able to sustain the success in cars. I'm more optimistic in the rocket business as the competition is limited. The automobile business is complex and scaling out their operation is going to be hard. Tesla's competitors have scale, suppliers who also invest and broad customer brand acceptance. They also have woken up.<p>China will soon provide battery capacity for cars in excess of what Tesla is producing. Autonomous driving on a broad basis requires a regulatory framework and that may well take time to emerge until there are other brands. The horizontal structure of the conventional car industry makes it likely that alternatives to Teslas autonomous drive will quickly spread across the traditional car companies.<p>Tesla may well build the best electric car for a long while but volume upside may be limited.
Conflating market cap and total worth is a pet peeve of mine.<p>Market cap is "price of <i>one</i> share" multiplied by the total number of shares outstanding.<p>If you want to buy a small number of shares, you can probably just multiply to find the total price you would pay.<p>If you want to buy a large number of shares, or the whole company, you can't just multiply. You would need to get the current owners to sell to you, and they might either charge you a premium or refuse to sell. The total worth of a company depends on the distribution and type of ownership (among many other things).<p>Market cap is a fine shorthand, but serious analysis about comparing worth should control for several other things.
1) Because investors with too much money in their pockets believe the self-driving hype.<p>2) Because GM (and Ford and Chrysler) has a lot more unknowns and risks given its increasingly outdated dealer-based sales channel, along with decades of pension liabilities, and is ultimately in a precarious situation, see: the near collapse of the US auto industry in 2008.<p>3) Maybe most importantly, investors believe that ultimately Tesla will be purchased by a big tech company with money to burn (or by a traditional automaker in full panic mode). Apple could pay _cash_ for all of Tesla's outstanding stock and still have the biggest cash stockpile of any corporation in the world.
There are as many reasons as there are investors. Apart from financial returns, not everyone is in it for the same thing.<p>My reason for giving Tesla a higher valuation is different to the next guy. However, Tesla is a better starting point for capitalising on a low carbon future. Even the GM pension obligations factor into my hunch. Ultimately it is all about belief, in my case a belief in a zero carbon future.
> The digital economy is giving us a world in which the benefits are concentrated among consumers and the Big Five who serve them. Everyone else just lives in it.<p>This is a really weird phrase. "Concentrated among consumers"? More than 80% of Americans use the internet, not exactly "concentrated".