Quora Answer: How Much Net Income Should Tesla Consistently Make Year over Year to be Valued at US$1 Trillion?

The following is my answer to a Quora question: “How much net income should Tesla consistently make, year over year, to be valued at US$1 trillion?”

The valuation of a company is not dependent solely on earnings.  Since Tesla is listed, what it means, in simplified terms, is that the demand for its stock pushes it to that level.  What that really means is that the value of its assets, the projected earnings of the company, and the structure of its management team, and business model cause investors and analysts to value the company at that amount.

Frankly, that is not going to happen anytime soon, if ever.  Here are some numbers for context.  Toyota Motor Corporation is the largest vehicle manufacturer, and one of the largest companies in the world by revenue.  According to their financial report, their 2018 revenue was US$270.6 billion, they had total book assets of US$463.3 billion, and total equity of US$179.0 billion.  Last year, Toyota’s combined production was over 10 million vehicles.

When it comes to Tesla Incorporated, they have not released their 2018 numbers yet, but in 2017, they produced just over 100,000 vehicles.  They have already reported problems meeting sales targets, the tax breaks Tesla buyers get for buying an electric vehicle expire this year, meaning new sales will drop.  Tesla also has problems with the management structure and the erratic behaviour of Elon Reeve Musk, which does not impress institutional buyers and analysts.

The idea that Tesla can be a trillion-dollar company is a pipe dream.  From a financial and management perspective, it has done nothing to earn its current valuation; its shares are already over-priced as it is.  Rather than increasing in value, Tesla will continue to have pressure on its stock due to its many public issues.  And in all that, the notion that Tesla’s cars are green solely because it runs on electricity is a gimmick.