150 years of history vs. 150 years to break even?

[SEB]

Here’s an interesting comparison between Mercedes and Tesla from a stock market perspective — thought it might spark some discussion among fellow enthusiasts.

Mercedes-Benz is a company with nearly 150 years of tradition — a true automotive legend.
And yet, when we look at current stock market valuations, the picture is quite surprising.

The market capitalization of Mercedes — meaning the total value of the company — is around €60 billion.
In comparison, the US Tesla is valued at approximately €1,070 billion.

The price-to-earnings ratio (P/E) also tells an interesting story:
For Mercedes, assuming current earnings, your investment pays for itself in just under 7 years. Quite fair.
For Tesla — it would take 150 years!!!!

So from the investor’s perspective, Tesla is currently worth nearly 20 times more than Mercedes with 150 years of heritage.

Curious to hear what others think — is the market being fair, or is Mercedes simply undervalued?

[AndrewB]

More likely that Tesla is overvalued.

Having said that, Tesla also do home power (via the Powerwall, solar tiles etc) and are rumoured to be launching a mobile phone that will also use Starlink to ensure that one always has a signal. So, it is possible that the market is valuing more than the motor vehicle operations

[Cees Klumper]

Tesla: sell
Mercedes: hold

That's my uninformed advice anyway. It appears that the valuation of Tesla is mostly based on expected future results that the company says will benefit from robotaxi and autonomous driving products and services "very-soon-to-be-launched". Mercedes on the other hand is probably not expected to make any major leaps in technology or services in the foreseeable future. Both will need to contend with increase global competition, especially from high-quality Chinese companies that are already outselling Tesla in various markets.

[Paul99]

Yes, (most) stock market valuations are based mainly on futures not today.  And yes as times change Tesla technology may get overtaken and then its valuation will drop.  The share price has already dropped since January this year by about 18%.  Chinese made cars are taking over the Tesla space in Europe.   If the other Tesla products dont arrive or perform.......  guess what might happen.

[PeterW113]

No doubt Tesla is over valued but maybe the financial markets have finally worked that a Mercedes is no better than Ford in terms of build quality.

[SEB]

No doubt Tesla is over valued but maybe the financial markets have finally worked that a Mercedes is no better than Ford in terms of build quality.

To conclude this analysis, let us use another comparison. Let's examine the ratio between a company's market capitalization and its actual assets, represented by its balance sheet total. In the case of Mercedes, this ratio stands at 0.57 – meaning the market values each 1 euro of the Mercedes assets at only 0.57 euro. In contrast, Tesla's ratio is an astonishing 17.7. So for 1 Euro of value they are paying 17,7 Euro ;-)

To better illustrate this disparity, imagine owning a Pagoda worth $100,000. Investors are effectively willing to pay $57,000 for the "Mercedes" – while offering as much as $1.77 million for the "Tesla." Frankly speaking, I find this difficult to fully comprehend from a rational standpoint.

[Cees Klumper]

Company valuation is mostly the markets' expectation of future earnings rather than current net book value of capital assets. It plays some role, but hardly, for example many companies sub-contract production so have very little asset value but can be hugely valuable if they are profitable. I once was involved in the acquisition of a cable company that had negative equity (liabilities exceeded assets) of $25 million, yet sold to a competitor for $150 million, which was calculated at $5,000 per subscriber. That's how that works.

[SEB]

As finance professionals, we both know there are many ways to value a company — from DCF and NPV models, to market multiples, to strategic metrics like "price per subscriber." Each of these methods has its place, depending on the context and business model. But perhaps this isn't the moment for an academic discussion.

What truly deserves attention here is the scale of the discrepancy. The ratio of market capitalization to total assets stands at 0.57 for Mercedes and a staggering 17.7 for Tesla — that's no longer just market optimism; it's bordering on investment euphoria.

And we’re still talking about the automotive industry — a capital-intensive sector grounded in physical production, global supply chains, and mechanical reliability. This isn't the cloud as in tech — it's clouds of exhaust and thousands of mechanical components.

I’d argue there should still be some proportion between the strength of the story and the reality of the underlying assets.

And allow me a small historical aside: Wall Street didn’t invent speculation. As you surely know, the first recorded speculative bubble happened in the Netherlands. The legendary Tulip Mania of the 17th century remains the textbook case of a market completely detached from reality.

Though… I suspect you know that story even better than I do? 😉

[Cees Klumper]

Yes Sir, and it was repeated a little bit in 2000, when many in the country feverishly participated in the Initial Public Offering (IPO) of ISP World Online which then saw its share price collapse when the true fundamentals sunk in. Good summary here:
https://en.wikipedia.org/wiki/World_Online

But nothing like today's crypto currency madness.

Let's revisit the Tesla vs Mercedes valuation discrepancy in say 15 years ...

[Paul99]

I agree.  Actually another strange "bubble" here in the uk.  Old basic FORDs (as in 1970s/8/90s) are now worth a fortune.  IMO they were at best average new, but now they are average and VERY expensive.  Such as this old 1976 escort. Sold for £277k (About $370k) supposedly rare mainly because they all rusted away or were crashed by boy racers.  Still they sell very well.

[Cees Klumper]

$370K for an old Escort wow. One 0 too many!

Almost as incomprehensible as the Tulipmania-like prices for UK and Australian number plates that we debated here before ($12 million for a number plate, do I hear $25 million?).

[SEB]

Yes Sir, and it was repeated a little bit in 2000, when many in the country feverishly participated in the Initial Public Offering (IPO) of ISP World Online which then saw its share price collapse when the true fundamentals sunk in. Good summary here:
https://en.wikipedia.org/wiki/World_Online

Thank you — I must admit I wasn’t familiar with the World Online story in such detail, so I truly appreciate you sharing it.

I agree that a 10–15 year horizon is a reasonable timeframe to revisit the valuation of Tesla vs. Mercedes. Time is the ultimate test of any narrative — though it can sometimes be a harsh judge.

Still, it’s hard to ignore just how undervalued the entire European automotive industry is today. It seems that the complexity of the real world — investments, manufacturing, logistics — is increasingly losing ground to a well-crafted growth story.