$1 Trillion Tesla Almost Makes You Feel For Other Car Giants: Kris Bryant

In just one frantic trading session, Tesla added $118 billion to its value, or nearly double the entire market capitalization of Ford Motor Co.

The trigger for this latest surge — the deal to supply 100,000 Teslas to Hertz Global Holdings Inc. — is a head-scratcher, as it represents “only” $4.2 billion in revenue. And it’s arguably not even the most important car rental deal of the year.

In July, the Volkswagen AG-led consortium said it would acquire Europe’s largest car rental operator Europcar Mobility Group for about 2.5 billion euros ($2.9 billion). VW plans to develop Europcar as a “mobility platform”, providing services such as car-sharing and vehicle subscriptions. Europcar already expects that in two years, more than a third of its fleet will be electric or hybrid. Investors yawned.

Tesla’s US and European rivals have tried every trick in the book to publicize their technology chops and rein in Tesla’s stock market gains. Many have copied directly from Elon Musk. They are introducing electric models, building battery plants, investing heavily in software and making the sales process more customer-friendly. I hope they continue to shake things up, but so far nothing has changed.

In a way, this double standard is entirely justified: existing automakers took too long to take electric vehicles seriously, and Musk took advantage of it.

Yet even now that they have started prosecuting for cause of power, their valuation is relatively low. As widely noted, Tesla is worth more than the next nine most valuable listed carmakers combined. This is the stock market’s way of giving back to the laggards, which is strange considering how much money most of them still make.

But Tesla has also become increasingly profitable, and if it wanted to, it could tap its increased equity to fund plants and technology, as it has in the past. Conversely, rivals must fund those investments primarily from their own cash flows.

The recent experience of Volvo Cars AB is instructive. On the same day Tesla breached its $1 trillion valuation, the Swedish premium maker was forced to cut the size of its impending IPO due to weak investor demand.

Volvo sold about 800,000 vehicles in the past 12 months — the same as Tesla — and although its electric volume is currently modest, it has vowed that half of its sales will be electric by 2025 and all of them by 2030. It also owns a roughly 50% stake in Polestar, an influential all-electric startup. Yet Volvo is set to be valued at less than $20 billion when its shares begin trading Friday, nearly 50 times less than Tesla.

At times during the past year it seems that the incumbents may have an advantage, but whatever momentum they have enjoyed has become modest or fleeting.

Ford and Daimler AG are among those who have discovered the Tesla-esque technology event is a good way to emphasize their electric commitments and set their shares on fire. Just last week VW held an investor event to highlight the value of its Lamborghini luxury sportscar unit.

Spinoffs are another increasingly popular tool for tackling the valuation gap. Daimler is listing its heavy truck unit, and there is speculation that VW may do the same with its highly profitable Porsche unit – I’ve argued before that it would be a no-brainer.

Listing a purely electric business is even better, ideally in the US where technical evaluations tend to be more “ambitious”. Polestar’s recent SPAC deal was valued at $20 billion, which is expected to exceed that of co-owner Volvo. Unfortunately, it is difficult for most car makers to make their electric activities much more constrained with their residual combustion engine units.

No wonder some have resorted to a simple name-change: Germany’s luxury leader is dropping “Daimler AG” for the sexier Mercedes-Benz. And while Volkswagen was only joking about becoming a “Voltswagen,” perhaps it should take the idea seriously: The April Fools’ gimmick turned it into a meme stock in a nutshell. VW CEO Herbert Diess has now learned how to use social media and a budding friendship with Musk to the advantage of his company.

However, none of these efforts are sufficient. Musk continues his lead: Tesla recently threw a big party at its new plant near Berlin — the openness and frivolity that made the German auto industry even more difficult by comparison. Tesla has also coped well with the industry’s semiconductor shortage, and its gross margin is increasingly impressive.

Until the company slips, it looks like older producers will have to live with the constraint of their stock market. The only way to salvation is to imitate the best elements of Tesla’s vision. But don’t count on being highly rewarded for it.

Kris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.