Tesla charges ahead to overtake Ford in market value

One is an automotive titan that has built more than 350m vehicles in an illustrious history spanning more than a century.

The other is less than 15 years old and has never made a profit.

And yet a 7% surge in the value of shares in electric car firm Tesla on Monday saw it zoom ahead of Ford Motor Company, in terms of its stock market value.

As Wall Street closed for the day, Tesla, led by 45-year-old tycoon and futurist Elon Musk, was worth $49bn (£38bn), compared with a paltry $46bn for the empire built by Henry Ford.

This astonishing overtaking manoeuvre says as much about the nature of stock markets as it does about these two very different carmakers.

The old cliche among stock market investors is that you should “buy on the rumour, sell on the fact” – the idea that investment is more about what you expect to happen in the future than the current state of play.

And Tesla, investors believe, is the standard-bearer of a battery-powered future – while Ford is the archetypal mass-production legacy car business.

Based in the Californian tech hub of Palo Alto, Tesla delivered 76,230 cars last year – a fraction of Ford’s 6.65m.

It made sales of $7bn but a loss of $746m, while Ford recorded a $10.4bn profit after racking up sales of $152bn.

But fresh figures published this week, which cover the most recent three months, showed 70% growth in sales at Tesla, with 25,000 electric vehicles rolling noiselessly into the garages of their new owners.

That sort of growth rate is what sent investors piling into Tesla shares, expecting a continued global push for greener cars to be the catalyst for converting notional value into concrete returns.

And if Musk is to to be believed, Tesla won’t be slowing down any time soon.

The firm’s production targets are unprecedented in the automotive industry. Tesla has set a goal of building 500,000 cars in 2018 and Musk has even raised the prospect of doubling that to 1m by 2020.

Despite the setback of a fatal crash last year, when a Tesla on autopilot failed to tell the difference between the side of a white lorry and a bright sky, the company continues to make strides towards a fully driverless car.

Its new Model 3, slated for production this year, is intended to offer a more affordable version of previous models, with a price tag around $35,000.

If successful – and it is being seen as a litmus test of the prospects for electric cars – the Model 3 could supercharge Tesla’s growth by muscling in on the territory of mass market rivals.

The firm also has a potentially lucrative sideline in storage batteries for the home. The Powerwall is intended to allow homes to store solar power, and Tesla is also due to start installing its first solar roof tiles this year.

Tesla may be on a charge, but Ford is in particularly bad shape. It remains in the world’s top 10 auto firms and is also among the US “Big Three” alongside General Motors and Chrysler. But while Tesla’s sales are soaring, the 6.65m vehicles that Ford sold last year were just 16,000 up on 2015 sales. In the most recent quarterly update from Ford, sales actually fell.

The company that helped to build Detroit, often known as Motor City, sold 1.7m cars in the quarter, about 68,000 fewer than in the same period the previous year.

Musk was in the mood to gloat about Tesla’s comparatively rapid growth story.

“Stormy weather in Shortville,” he tweeted, a reference to traders who had been burned by “shorting” Tesla – betting its results would disappoint and its shares would fall.

He gave short shrift to sceptical commentators, too.

Veteran technology journalist Walt Mossberg, now executive editor of media network The Verge, said on Twitter: “I admire Tesla and @elonmusk,” he said, “but this is the billionth example of why stock market valuations don’t reflect reality.”

That, replied Musk, is precisely the point. He tweeted: “Exactly. Tesla is absurdly overvalued if based on the past, but that’s irrelevant.A stock price represents risk-adjusted future cash flows.”

Michelle Krebs, a Detroit-based senior analyst with Autotrader, sounded a rare note of caution. “Investors are betting on the future, which they think is promising and they’re looking at the stock to make big gains,” she said.

“But there will come a day that Tesla has to make money and the Model 3 is a test of that. It will make or break whether Tesla can be a volume manufacturer that appeals to a wide swath of consumers and whether it can be profitable or not.

“One of the big risks that Tesla will face is increased competition. Everyone from General Motors with the Chevrolet Bolt to BMW and Mercedes are being aggressive on electric cars. They will face increasing competition as established players and upstarts come into the market.”

But South-African born Musk doesn’t really do caution. He bought into Tesla at an early stage after making his fortune through the development of tech businesses including PayPal, which made him $165m when it was sold to eBay for $1.5bn.

He has since amassed a fortune of $14bn, as well as a reputation for seemingly fantastical visions of the future. The founder of private space exploration company SpaceX, he has pledged to slash the cost of space travel to help the human race survive by colonising Mars and other planets.

“Either we spread Earth to other planets, or we risk going extinct,” he told a conference in 2013. An extinction event is inevitable and we’re increasingly doing ourselves in,” he said.

Last week, the company became the first to launch a partially recycled rocket into space, in what Musk termed “a milestone in the history of space”.

He also conceived the Hyperloop, a transport system he says could whizz people between Los Angeles and San Francisco in 30 minutes at speeds of up to 700mph (1,126 km/h).

Bold ambition and market-pleasing bombast have become the currency of a man with a knack for marrying technology and glamour, generating global excitement among his legions of fans and admirers.

The fact that Tesla should be valued more highly than Henry Ford’s century-spanning mother of all carmakers suggests that Musk’s zealous disciples are not the only ones who believe the hype.

Tesla, new car on the block

Market value $48.6bn

Annual car production 76,000

Annual revenues $7bn

Annual pretax loss $746m

Founded by Martin Eberhard and Marc Tarpenning in 2003; Musk was a lead investor in 2004 and became chairman of the board. He is now “chief product architect” and chief executive

Based in Palo Alto, California

Products Electric cars. Roadster in 2008. Model S (luxury sedan), Model X (SUV), Model 3 (to be launched this year); solar panels (launch planned this year)

Floated on the stock market in 2010

Employees 30,000

Ford, venerable vehicle maker

Market value $45bn

Annual car production 6.6m

Annual revenues $152bn

Annual pretax profit $10.4bn

Founded by Henry Ford in 1903

Based in Detroit, Michigan

Products Model T in 1908; F-Series trucks, Fiesta, Focus, Mondeo, Escape, Explorer, Expedition, Lincoln luxury vehicles

Floated on the stock market in 1956

Employees 201,000

Julia Kollewe