Tesla is not a car company but it does a good impersonation

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Tesla’s rising profitability sets it apart among carmakers. Rivals such as Volkswagen and Stellantis have warned of a squeeze from weaker demand and rising costs. General Motors’ electric vehicles are still lossmaking. But there is another thing that sets Tesla apart: against its peers, it is barely a carmaker at all.

True, Elon Musk’s company reported $20bn of vehicle sales in the third quarter. In a pleasant surprise for investors, the cost of making them fell to an all-time low. Tesla remains a long way from the 20mn car sales target it once set for 2030, but it is on course to meet the more modest 1.8mn analysts expect this year, according to Visible Alpha. Musk said his “best guess” was that output could expand by up to 30 per cent next year.

A rising share of Tesla’s revenue and profit, though, comes from other things. One is selling carbon credits to other carmakers. That brought in $2.5bn of revenue in the past year, equivalent to about a fifth of the company’s total operating cash flow. The other is Tesla’s blossoming battery and solar panel business, growing at 52 per cent year on year, and with higher gross margins than its cars.

Look closely at Tesla’s $750bn valuation, and it starts to become clear that cars play only a bit part. Assume Musk can make 6mn vehicles by 2030, that they sell for $35,000 each and that investors value a good car business at twice its forecast revenue, the highest multiple Toyota commanded in the past couple of decades. That suggests Tesla’s car business is worth $420bn six years from now, or about $240bn today after accounting for the time value of money.

That leaves more than $500bn unaccounted for. Batteries make up a chunk of it. So might the self-driving robotaxis that Musk touted in an underwhelming live event this month. In the future, he says all the company’s vehicles will be one giant autonomous fleet. But it is hard to say what that version of Tesla is worth, since it is yet to exist, and the cost of building it is decidedly unclear.

Then there is Optimus, the humanoid robot that Musk believes could be worth at least $10tn in long-term market value — in other words, at least 13 times more than the whole of Tesla today. Is that plausible? Impossible to say. But it brings home the real point about Tesla, which is that at $750bn, it is largely an investment in Musk’s imagination. While the likes of Volvo, Volkswagen and General Motors battle to sell cars, Tesla sells chutzpah — and investors are still buying.

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