Tesla is valued about eight times more than Ford and General Motors, even though it makes far fewer cars. Greenwich Capital CIO Vahan Janjigian told CNBC that Tesla would plummet if it’s valued like a traditional automaker. Tesla saw its worst annual decline on record in 2022, falling more than 60% as investors grew weary of Elon Musk’s commitment to the company. Loading Something is loading.
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Should Tesla be valued like a traditional automaker, or a tech company?
That question has been at the center of a years-long debate between investors and skeptics of the electric vehicle maker, as bullish investors focus on its EV innovation, self-driving tech, and forays into solar and energy storage as reasons why Tesla deserves a premium valuation to traditional automakers.
But one thing is for sure: if Tesla ever is valued like Ford or General Motors, it has a lot more room to fall, according to Greenwich Wealth Management chief investment officer Vahan Janjigian.
He told CNBC on Wednesday that even after falling more than 60% in 2022, Tesla is still valued at about eight times more than Ford and General Motors — despite selling millions of fewer cars each year.
Both Ford and General Motors have a market cap of about $45 billion, compared to Tesla’s valuation of just over $380 billion. In fact, even after Tesla erased more than $700 billion in market value this year due to concerns about Elon Musk’s time commitment to the company, it’s still worth more than the four biggest auto companies combined.
“Tesla I think is still tremendously overvalued despite its plunge this year… I think Tesla should be selling at a higher multiple than [Ford and General Motors] because it has much better growth prospects and they dominate the EV market. But this multiple is way too high,” Janjigian said.
Tesla currently trades at a forward P/E ratio of 21x, compared to 6x and 5x at Ford and General Motors, respectively. The only major auto company that has a higher valuation multiple than Tesla is Ferrari, which has a gross profit margin that’s about double Tesla’s due to its focus on selling high-priced luxury vehicles.
If Tesla were valued by investors more like its automaker peers — while maintaining a sizable premium due to its fast growth rate and technological innovations — the company could see its value plunge even further, according to Janjigian.
“Tesla is currently selling about 1 million cars per year. That number is going to grow. When I look at Ford, which is selling approximately 5 to 6 million cars per year. I think Tesla will get up there, so therefore under that argument I think it should be worth at least as much as Ford, maybe twice as much as Ford, maybe 3x as much as Ford. But 8x as much as Ford? I think that’s too high,” Janjigian said.
If Tesla fell to a valuation that was three times as much as Ford, it would be worth $135 billion. That would represent a 65% decline from current levels, and an 89% decline from its peak valuation of more than $1.2 trillion.
“Are they going to be the only car seller in the world? Are they going to put all these other automobile manufacturers out of business? If that’s the case then [they should be valued higher]. But Ford is also making EVs. GM is making EVs. Every single manufacturer now is trying to grow their EV business, and they have a lot of years of experience behind them… so I think that they will eventually catch up [to Tesla],” Janjigian said.