Comment by jsight
9 hours ago
Usually people respond to this by questioning Tesla's high valuation, and that's fair.
TBH, though, I also wonder why auto companies tend to be valued so lowly. Often P/E ratios are in the single digits, and frequently paired with high dividends.
Maybe both valuations are really wrong.
Auto companies aren't valued as lowly as the P/E ratio indicates. Auto companies have massive amounts of debt, and debt has higher priority than equity.
Instead of "P" you should use "Enterprise Value", which is Equity + Debt - Cash. (cash subtracted to prevent double counting it).
Their EV/E ratios are much more reasonable. And Tesla's used to be only a small multiple of traditional companies, when I owned shares. Now they aren't, and I don't own shares.
Cars are a mature market, with lots of competitors and flat overall sales. Many brands are consolidating or contracting.
US total vehicle sales, historical: https://fred.stlouisfed.org/series/TOTALSA
Growth markets like China have stiff domestic competition and many barriers to entry.
Some of those companies have an awful lot of debt on their balance sheets.