Tesla Inc (NASDAQ: TSLA) shares have been on fire in recent weeks, sparking a heated debate between Tesla bulls and bears as to whether the stock is a compelling long-term value or a mania-driven bubble.
DataTrek Research co-founder Nicholas Colas took a fundamental look at where Tesla stands today compared to where auto giant General Motors Company (NYSE: GM) was nearly 100 years ago.
Colas compared Tesla’s current numbers to a GM financial report from 1932. At that point, GM had been around for 24 years, eight years longer than Tesla is today.
“General Motors back then was much like Tesla today; a driving force in developing an important new technology,” Colas said.
However, there are several key differences.
The most obvious difference is that GM’s stock was never as expensive as Tesla’s is today, even during the peak of the Roaring 20s stock market prior to the 1929 crash. GM’s Roaring 20s peak share price was $92 and market cap was $4 billion. Adjusted for inflation, GM’s peak valuation was $60 billion, less than half of Tesla’s $135 billion market cap today.
Colas said GM’s early acquisitions focused more on establishing a competitive moat for its auto business, while Tesla’s acquisitions have been more focused on technology.
GM also has an early major investor in DuPont de Nemours, Inc. (NYSE: DD), which owned 23% of GM until the 1950s.
“Tesla, by contrast, is for better and worse, the Elon Musk show,” Colas said.
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Another key difference between GM’s early years and Tesla’s is that GM was a profitable company.
GM had only one year (1921) in its first 24 years in existence in which it did not turn a profit. Tesla has yet to have a single profitable year in its first 16 years. By year nine, GM began paying a dividend and was even able to maintain its dividends during the peak of the Great Depression, utilizing its $151 million in cash ($2.2 billion in today’s dollars) to pay its 1932 dividend.
Tesla, on the other hand, has relied on outside funding to drive its growth and has lagged GM significantly in finally reaching what investors hope is sustainable profitability.
3 Key Takeaways
Colas said the point of the comparison is not to label Tesla as a worse company than GM was at similar points in their histories. Instead, there are three primary takeaways from the comparison:
- It's much easier to scale when a company has outside partners and investors rather than going it alone.
- It's now much easier to launch and grow a disruptive company today than it was 100 years ago.
- Management is the most important part of building a successful company.
“GM was a case study in operational excellence for decades. Elon Musk is cut from a different cloth, but there’s no denying he has accomplished something important,” Colas said.
Up to this point, Musk’s approach to building Tesla’s brand and business has worked just as well as GM management’s more financially conservative approach back in the 1920s. GM was able to weather its first real test when the economy tanked during the Great Depression, but Tesla has yet to face its first financial test given there hasn’t been so much as a run-of-the-mill recession since it went public in 2010.
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