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Tesla, the Poster Child

Tesla is the poster child for the valuation disparities that have marked the stock market since 2009. Tesla has piled up nearly $3 billion of operating losses since going public yet it carries a market capitalization of $50 billion. It produced just 100,000 cars in 2017 and lost $2 billion in the process. In contrast, stodgy old Ford Motor produced over 6 million cars and and generated $7.6 billion of profits for its shareholders. Yet the stock market values it at only $42 billion.

Granted, Elon Musk has been a master at painting a bright future for his Model 3 vehicle, but at some point financial reality must take over. At its current cashflow “burn rate”, Tesla will need another $4 billion of financing in the next year. Its bonds are deep in junk bond territory and carry a negative outlook according to Standard & Poors. Ford maintains an “investment grade” rating on its bonds. Which company has a better prospect of tapping the debt markets if times turn tough for the auto industry?

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