Tesla Lost $674 Million Last Year, While GM Made $9.4 Billion. So Why Is Tesla Worth More?

It’s all about the story.

If it’s not official at the moment you read this, it’s likely to be soon: Tesla’s (NASDAQ:TSLA) market cap surpassed General Motors’ (NYSE:GM) at several points during the trading day on Monday. Once it’s a done deal, that will make Tesla the largest U.S. automaker by market cap. But what does it mean?

This isn’t about fundamentals

I don’t think I’ll upset any of its fans by saying that Tesla’s valuation isn’t exactly supported by flinty, old-fashioned Benjamin Graham fundamental metrics. Tesla sold a total of 76,230 vehicles in 2016, or one for every $669,000 of its market cap, give or take. It lost $674 million on revenue of $7 billion.

I’ll give credit where it’s due: That sales total is a genuinely impressive achievement for a start-up automaker. But c’mon: GM sold 10 million vehicles last year. (An all-time record for the General, by the way.) And under CEO Mary Barra, GM has been putting up big profits with good margins: GM earned $9.4 billion-with-a-b in net income on revenue of $166.4 billion in 2016.

Step back a minute: What the heck is going on here? How is it possible that investors think Tesla is more valuable than GM?

A vision of limitless potential

Obviously, Tesla’s valuation versus GM’s isn’t about sales or revenue or margins or anything you’ll find in a financial report. It’s about the story.

Tesla has a truly great story. It’s one of the most exciting corporate stories in years. As fans see it, CEO Elon Musk is inventing the future — of cars, of electricity for homes, of clean energy in general — right before our eyes. In the minds of Tesla’s biggest fans, the company’s future growth potential seems unlimited.

When I say “unlimited,” I’m not kidding. Morgan Stanley auto analyst Adam Jonas, a longtime Tesla bull, issued a note last week that estimated Tesla’s eventual total addressable market at $15 trillion. That’s about 20% of the gross domestic product of all the countries in the world, combined.

How could boring old General Motors possibly hope to compete with that? (Maybe Jonas would be more impressed if Barra announced a Mars mission. Of course, then GM would just be accused of copying Tesla.)

The bullish case for GM can’t compare

Really, it’s not very hard to figure out why Tesla’s value is so high. Investors want to see growth. Tesla offers the possibility of truly massive growth, something that just isn’t in the cards for GM.

A black Chevrolet Bolt EV before a rocky waterfront.


The bullish investment case for GM is pretty good, at least when compared to ordinary industrial companies. It assumes that GM’s annual profit will grow to something in the neighborhood of $15 billion over the next several years on a slew of incremental improvements that Barra is making to GM’s businesses. Until then, you can collect a nice dividend.

That’s not shabby at all. But the bullish investment case for Tesla assumes that it will become the largest and most profitable company in the history of humanity. And that even if it doesn’t, it’ll grow into a company generating hundreds of billions of dollars in revenue every year.

See what I mean? GM’s possible growth pales in comparison.

Tesla’s story is also a recipe for volatility

The thing is, Tesla’s great potential comes with great risk. Right now at least, Tesla has shaky finances, faces considerable uncertainty on a number of fronts, and — in its core business, electric vehicles — will soon have to deal with vastly better-funded competition (including GM) that is catching up quickly.

That risk makes Tesla’s stock volatile, and could make for a wild ride if and when the market turns choppy.

GM? Well, GM’s margins will come under pressure during the next economic downturn. That’s how it goes in the auto business. But with low debt and a big cash reserve, GM is unlikely to face serious danger. That means that the downside to an investment in GM’s shares is probably limited.

But to Tesla bulls, the Silicon Valley upstart’s upside is unlimited. That’s why Tesla’s shares have soared. And it’s why the company will remain richly valued — at least, until the story changes.

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John Rosevear owns shares of General Motors. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy

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Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.