By Tim Higgins
Silicon Valley overtook the Motor City on Monday.
A surge in Tesla Inc. stock during morning trading gave it the
title of largest U.S. auto maker by market value -- a feat that
would have seemed highly improbable 13 years ago when the
electric-car maker based in Palo Alto, Calif., first began
tinkering with the idea of making a sports car.
Shares in Tesla rose as high as $313.73 Monday, helped by an
upgrade by Piper Jaffray, pushing the company's market
capitalization to $51.17 billion. That high-water mark exceeded
Detroit-based General Motors Co., which at its lowest point Monday
was worth $50.93 billion. By the market's close in New York,
however, Tesla's gains had faded, leaving its market value at
$50.95 billion compared with GM's $51.18 billion. Ford Motor Co.
closed the day at $44.8 billion.
Market values are calculated using data provided by FactSet,
which draws information from public filings.
Still, that Tesla was valued higher than GM underscores the
profound change occurring in the global automotive industry as
Silicon Valley pursues a vision for transportation -- including
self-driving cars and vehicles on demand -- that could upend
century-old competitors. Last week's disappointing monthly sales
results by traditional auto makers served as a further example to
investors concerned that the profitable U.S. new-car market is
plateauing.
"We've built a track record of strong financial performance," a
GM spokeswoman said in an email. "We'll stay focused on delivering
outstanding results and making decisions to deploy capital where it
will generate the strongest returns, to enhance shareholder
value."
Tesla declined to comment.
GM is the largest auto maker in the U.S. by market share, making
up 17.3% of the sales last year, according to Autodata Corp. Tesla
had a 0.2% share, which beat Ferrari and Maserati.
"What's fun about following this company now is that anything
can happen, " Chaim Siegel, an analyst for Investing.com, said in
an email about Tesla that aligns with investor sentiment even as
the auto maker remains unprofitable and deeply in debt. "The
potential is huge. The hopes are huge."
Even some of Tesla's most optimistic followers didn't expect the
extent of the recent surge in value. "We're pretty surprised by the
recent run in Tesla's share price to over $300 so quickly," Adam
Jonas, an analyst for Morgan Stanley, wrote in a note to investors
as Tesla's market cap neared GM's. He had been targeting a $305
price for Tesla. "Such is the power of technical factors over
fundamental drivers," he said.
Tesla shares are up more than 40% this year, a move that last
week led Chief Executive Elon Musk's company to surpass Ford as the
second-largest auto maker. The exuberance comes even as Mr. Musk
faces huge challenges in accomplishing all he is claiming to do,
including making 500,000 vehicles next year after building just
84,000 last year and creating software that would enable a vehicle
to drive itself.
"It's indicative of the market wanting to pay for potential,
including into markets that don't exist yet in any large size such
as [electric vehicles], home energy generation and storage, rather
than profits and cash flow today that the large auto makers
generate," said David Whiston, an analyst for Morningstar
Research.
Mr. Musk, who has struggled to bring out new products before,
faces the daunting challenge of later this year rolling out the
$35,000 Model 3 sedan, the linchpin in his plans to take the
company into the mainstream from the rarefied air of selling luxury
vehicles.
His acquisition of SolarCity Corp. late last year and removal of
the word "Motors" from the company's official name are part of a
broader vision of being able to offer solar panels to generate
energy and batteries to store that power at home or the office --
all for the benefit of the vehicles being sold. He has also begun
shipping vehicles equipped with the hardware he says is needed to
make them fully self-driving once the software is completed, aiming
to demonstrate the prowess by year-end.
It is a vision that received a strong endorsement late last
month with the revelation that Chinese technology company Tencent
Holdings Ltd., best known for China's largest social network,
WeChat, had acquired a 5% stake in Tesla.
"The sooner investors view Tesla as a
transportation/infrastructure company rather than just a car
company, the more we believe the industry events to come over the
next 12 to 18 months will make sense," Mr. Jonas wrote.
Investors continued to push Tesla shares higher last week after
the announcement of a record quarter of vehicle sales. Meanwhile,
GM reported a modest U.S. sales gain for March, lifted by truck
demand, and said Chief Executive Mary Barra earned $22.6 million in
2016, a decline of 21% from 2015 when she was awarded a sizable
retention package. Ms. Barra, at the helm since 2014, has said her
goal is to make GM the most valued auto maker in the world.
For GM, Tuesday was particularly painful. The Detroit auto
maker, which sold 10 million vehicles last year globally, has been
rushing to develop its own self-driving technology, acquiring
Cruise Automation last year in a deal that could be worth $1
billion, and investing in ride-hailing service Lyft.
Ms. Barra's predecessor, Dan Akerson, a former
telecommunications executive, was concerned about Tesla's
potential, setting up a team to study how the electric-car maker
could threaten GM and challenging his senior executives to
war-game-like scenarios.
GM has been especially aggressive in recent years in trying to
thwart Tesla, pushing legislation in states in an attempt to block
the company's strategy of selling directly to customers instead of
using franchised dealers like the rest of the auto industry has
done for generations. In preparing the new Chevrolet Bolt
all-electric small car, seen by some as GM's answer to the Model 3,
Ms. Barra said in January 2016 at CES, the annual
consumer-electronics show in Las Vegas, that GM's dealer network
gave it a competitive edge. Tesla's belief in having the ability to
control its own stores is prized highly among the company's senior
leaders.
GM's vision of a world with self-driving cars dates to concepts
it introduced at the 1939 New York World's Fair, but innovation
took a back seat among many recent leaders as the company fought to
avoid bankruptcy.
Ultimately, GM's debt load and the 2007-09 recession led to what
was then-unthinkable years earlier: GM's U.S. government-backed
bankruptcy-court reorganization in 2009.
Financially, the company has roared back, reporting record
profits and developing some of its best vehicles in a generation.
But investors have largely yawned. Shares in GM closed at $33.71 on
Friday, compared with the company's postbankruptcy-court
initial-public-offering price of $33 in 2010.
"It's absolutely mind-boggling that we're even discussing GM and
Tesla reaching a parallel," said Dave Sullivan, an industry analyst
with AutoPacific. "It's not as if they are sitting on some sort of
blockbuster drug that isn't available in generic form. The wide
rollout of electric vehicles by Jaguar, Daimler, BMW and Audi is
right around the corner."
Write to Tim Higgins at Tim.Higgins@WSJ.com
(END) Dow Jones Newswires
April 10, 2017 18:08 ET (22:08 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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