In 2020, Tesla represented 79% of the US electric vehicle market:
The next-largest player in the EV market was Chevy with just 8%.
At its peak share price of $900, Tesla had a market cap of $821 billion. After the recent sell-off, Tesla’s market cap is still a sizable $525 billion.
What if, over time, Tesla’s share of the EV market drops to, say 50%? 40%? 30%, even?
What would its market cap be then?
Tesla shares are priced basically with an assumption that Tesla will always maintain a commanding 80% hold on the EV market in the US.
This is my main concern with Tesla: the market is acting like Tesla is going to be the only automaker in the world once EVs finally become the norm.
But this is not how the auto industry has traditionally worked. The automotive market in the US may have started with just Ford, but over time competitors began flooding into the market and the automotive sector as a whole become fiercely competitive.
I just can’t help but thinking the EV market will eventually be heavily fragmented and competitive. It’s not like all the current automakers with a share of the US market–Ford, GM, Toyota, Honda, Nissan, Mazda, Chrysler, Mercedes, BMW, Volkswagen, Hyundai-Kia, etc.–will just allow Tesla to dominate the rapidly growing EV sector.
They’re all going to transition to EVs eventually. They’re all coming for Tesla.
And then you’ve got all the EV startups that are trying to follow in Tesla’s footsteps. Fisker, Lucid, etc. I’m sure more will appear down the road.
Tesla definitely has the first-mover advantage, plus enormous branding power (basically everybody under 40 wants to buy a Tesla). And they have Elon Musk. I don’t want to seem like I’m discounting any of that.
It’s just hard to see any automaker justifying even a $525 billion market cap, much less the $800 billion valuation.
I know a lot of people see Tesla as more than an automaker–they’re seen as also leading the charge in the autonomous vehicle revolution, plus batteries. The biggest Tesla bulls actually consider them an energy company with an automotive side hustle.
I like Elon Musk, and I have been strongly considering buying TSLA for a long time. But even at current reduced levels I just can’t justify it.
I see Tesla right now as Ford in the 1920s: yes, Ford initially dominated the automotive sector, but eventually the Big Three emerged. And then by the 1970s, foreign automakers moved in and began taking more and more of the market share.
This chart is from 2016, so it’s not up to date, but it still illustrates just how competitive the automotive sector is nowadays. The largest US automaker by market share (at least in 2016) was GM, who had just a 17.2% market share:
GM’s market cap today is about $79 billion.
And Tesla currently has a 79% market share in the EV sector.
Maybe I was being overly optimistic in assuming that share would one day drop down to the 30% range.
My biggest fear about buying TSLA is if one day Tesla only has a 15-20% market share.
Now I have not done a ton of deep research on TSLA the way some of the big-time bulls have. I don’t know the full bull case for why Tesla deserves an $800bn+ valuation. I’d be happy to be proven wrong on this. I’d love someone to enlighten me on why I’m wrong here, but right now I just don’t see how TSLA can justify this valuation.