Tesla’s skid leaves old car with a new dilemma


During the pandemic, something strange has happened to the global auto industry: its valuation has roughly tripled to about $3 trillion. I wrote about that here. A year or so later, a host of other strange things have happened, most notably the boss of the world’s most valuable automaker trying to operate a certain social media platform. The simultaneous collapse in Tesla Inc.’s valuation explains much of the decline in industry value, as well as on the way up — but not all.

The big bubble of 2021 is over. But the big rally of 2020 remains if redistributed. The electric car prodigies were aging fast. Even if some new faces have arrived, electrics are worth less today than they were at the end of 2020. Traditional automakers were also sold last year. Since they didn’t charge to the same extent, their decline was also much smoother. Already, Old Auto is valued 23% higher than it was at the end of 2020.

On the electric side, Tesla went under, taking all the mini-Teslas in its wake. Plain old mean return, coupled with Elon Musk’s Twitter Inc. fiasco and the sale of his own Tesla stock, sent Big EV down. But the drama masked a more damaging, if mundane, development: Tesla’s urgent need to stimulate demand and refresh its product line, just like any legacy automaker. Including plug-in hybrids, China’s BYD Co. Ltd. Tesla and became #1 in terms of EV units sold last year.

Despite this, Tesla still boasts the highest valuation in the industry, and together with BYD, this means that two of the top 5 by market cap are electric vehicle manufacturers. The EV sector may have given up all of its gains and more since late 2020, but it’s still six times its size at the end of 2019. Electric models, including plug-in hybrids, accounted for a quarter of vehicle sales last year in China, China largest market in the world. Preliminary data suggests that one in ten cars sold worldwide was electric, up from one in 100 just five years earlier. Meanwhile, the old guard continue to set targets for and invest in the electrification of their own vehicles. Last year saw the release of the Lightning, the electrified version of Ford Motor Co.’s best-selling model, the Ford F-150 truck.

Overall, the aggregate automaker market cap remains about 75% higher than at the end of 2019, and within that, traditional automakers are worth hundreds of billions of dollars more than they were at the end of 2020 after the first phase of the rally. While numbers have shrunk from the dizzying heights of about a year ago, the industry remains poised for an electric vehicle revolution led by a group of (chastised) newcomers and a bright future for the traditional companies rumored to be supplanted. And all this at the end of a year in which global vehicle sales appear to have declined slightly.

Call it the fog of disruption. Warren Buffett famously said that picking the losers of transportation revolutions is easier than picking the ultimate winners. Musk’s aura may be dim, but he’s by no means counted out; Tesla continues to trade at a 76% premium to the S&P 500 on price-to-earnings multiples. On the other hand, traditional automakers are still making big profits with ICE-dominated models and are beginning to catch up on the electrified side.

Another element of this dissonance has nothing to do with different powertrains. An anecdote: I recently received an electric vehicle, and after a few months, one of my favorite things is that when I charge my phone on the built-in induction pad, the vehicle reminds me to pick it up when I park. Obviously I excite easily.

The point is that user experience is the most likely route if an industry whose core business continues to move about 90 million boxes on wheels a year is to keep up with even the slacking surge in value seen in recent years.

Tech inside, not underneath, was certainly a prominent topic at this month’s Consumer Electronics Show. Despite all the excitement, electrification itself will likely become a commodity in large part over time, even as it erodes the current industry differentiator — price aside — of engine performance. Features like entertainment, driver assistance and, yes, reminders to charge the phone will help brands put some distance between themselves. Even better, drivers may be willing to subscribe to such services, as is currently the case with Tesla’s Full Self-Driving monthly package or General Motors Co.’s OnStar.

Selling a box on wheels and then getting the driver to pay you recurring fees for the privilege of using it to its fullest — the razor blade, steering wheel model — is the holy grail. And there’s no guarantee that drivers will choose to do so, or put another way, that the industry can provide services to justify the charges. Musk’s regular overselling of autonomous driving was perhaps the only means of even attempting to rationalize Tesla’s peak of over $1 trillion. Growing skepticism that self-driving will be possible anytime soon, possibly compounded by lower expectations elsewhere in the industry, may also have contributed to the Tesla sell-off.

Therein lies, with all the gloating, an associated challenge for the traditional car manufacturers. As they attempt to propel themselves into a more electrified and intelligent future, they may not need to justify the kind of insane valuation Tesla was foisted on not too long ago. Still, they have yet to convince investors that not only can the industry make the switch from gears and grease to charging and chips, but it can also make more money in the process — something Tesla’s recent price cuts are already struggling with. Curiously, the Tesla setback that Old Auto tacitly welcomes also serves to illustrate the challenge of its own transition.

More from the Bloomberg Opinion:

• Musk poured rocket fuel on Tesla’s stock market crash: Liam Denning

• Rivalry between Tesla and BYD shows that not all electric vehicles are the same: Anjani Trivedi

• Sparks fly in the electric car trade war: Lionel Laurent

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’ Lex column.

For more stories like this, visit bloomberg.com/opinion


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