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How Tesla’s ‘story’ is driving its skyrocketing stock value

April 10, 2017 at 6:30 PM EDT
The market value of Tesla, the high-end electric car manufacturer, has surpassed that of American automotive giants like Ford and General Motors, both of which sell millions more cars than Tesla does. James B. Stewart of The New York Times joins William Brangham to discuss Tesla’s brand allure and the state of today’s auto industry.
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JUDY WOODRUFF: But first: some eye-popping news in the automotive world.

The market value of Tesla, the manufacturer of high-end electric cars, has actually surpassed that of Ford and General Motors, both of which sell millions more cars than Tesla does.

William Brangham takes a closer look.

WILLIAM BRANGHAM: Here are some head-scratching numbers to consider.

Tesla’s market value is $50 billion, yet Tesla may lose nearly a billion dollars this year, whereas, combined, Ford and GM are expected to earn more than $15 billion. Last year, Tesla sold just about 80,000 vehicles. Ford and GM? They sold nearly 17 million.

James Stewart is a business columnist for The New York Times and a staff writer for The New Yorker, and he’s here to help us understand why Tesla’s value is skyrocketing.

James Stewart, welcome to the NewsHour.

You know these numbers very, very well. What is going on here?

JAMES STEWART, The New York Times: Well, these numbers are pretty amazing. They make no rational sense, really.

But Tesla is what I call the sort of ultimate story stock, which means investors care about the story. They don’t care about the numbers. They do not care that it’s losing. They have lost over $500 million last year, may lose a billion this year. And they don’t really care that GM and Ford are making billions of dollars in profit.

The story with Tesla is that they are going to dominate the auto market, that they are going to create the world’s safest car, that they are going to take over the battery market, and that they are going to dominate and reinvent the electric grid.

I mean, these are all huge markets, and they think Tesla is going to dominate every one of them.

WILLIAM BRANGHAM: As you wrote in a recent column in The New York Times, there have been a lot of story stock and story companies that the story turned out to be a lot more fiction than fact. How do we know whether Tesla is going to be one of those?

JAMES STEWART: Well, we don’t.

And most story stocks which trade at these astronomical levels end up very badly. There were scores of these in the dot-com boom now forgotten, worthless. But, more recently, the Amazon story has caused investors to be very excited.

Amazon didn’t make any money for years. It plowed all its revenues back into R&D. But the story is, it was going to dominate the vast global retail market. It still hasn’t achieved that. It still is not making huge amounts of money. But investors in Amazon have done very, very well over a period that’s now going on to decades.

So, stock investors in Tesla can do well as long as the story holds. So, every time you see a bit of data that confirms the story, the stock surges. Like, it had modestly better sales in the last quarter than expected. The stock was up 7 percent.

Now, I will say for Tesla, it also has delivered a product that people love. It’s quality. It looks great. It performs great. And so far, it has actually met its promises, even though they seemed farfetched at one time.

WILLIAM BRANGHAM: I mean, I would agree with you, all those characterizations. It’s a beautiful car. I have ridden in one. It’s a fantastic vehicle to be in.

But there have been some quality and reliability issues. And primarily their customers have been luxury market customers. I know Tesla is now trying to roll out a more mid-market car.

If they have those same reliability problems, do you worry that that could really dent their image?

JAMES STEWART: Well, I have to say, in Tesla’s defense, that, yes, there have been some issues, but nothing out of the ordinary.

In fact, I think, just in January, the federal monitors gave it its highest safest evaluation. And one of the stories that people are so excited about is that its autonomous driving technology is going to make the car incredibly safe.

But we will see. You’re right. It is the high-end customer so far that is driving the sales. And a big, big step for them is when they try to expand that market by moving into more of the mass market car with this 3 model at a much higher production level.

Can they keep the quality levels up? Can they keep the consumer satisfaction levels up? Again, though, I have to say, Tesla was very smart. They start at the high end. They develop incredible brand allure, and now they’re moving down market.

GM, I think, had a terrific car first with the Volt, now the Bolt, but they buried in the Chevy name plate, and it didn’t take on any allure whatsoever for consumers.

WILLIAM BRANGHAM: What are the other automakers saying about this? This must make them livid.

JAMES STEWART: Well, they won’t say it publicly about a competitor, but they’re tearing their hair out.

They don’t get it at all, because Tesla gets the benefit of every possible doubt from investors. They get the benefit of none. Tesla doesn’t have profits, so you can’t measure its stock compared to profits.

But profit-to-earning ratio, which is a common stock measure, Ford and GM have some of the lowest in the stock market. As Tesla trades at like seven times the revenue, Ford, when I looked this week, was trading at 0.3 times revenue.

I mean, I do feel kind of bad for them. People feel the sun has set on the traditional auto industry, and they just are not getting any benefit of the doubt.

WILLIAM BRANGHAM: All right, James B. Stewart, thank you very much.

JAMES STEWART: Sure.

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