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Why Tesla Is Worth More Than GM

technologyreview.com

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Re: Why Tesla Is Worth More Than GM

#51

Post by coralreef »

heifer2822 wrote: post #34
spectrum1234 wrote: post #26

Earlier quoted context omitted.

Except that the MARKET values GM's stock at...exactly what it is priced.

I'm not an expert on this but I think the point was market cap is the value of all outstanding shares. Tesla raised money through venture capital while GM raised money by going to the bank and getting a loan. Think about buying a $1M rental property. One guy gets 9 friends together and they each put up $100k for 10% of the house. The house/business is worth $1m. The market cap is $1m. Another guy wants to buy a $1m r…

The house's market value is the same as its market cap. It would still be $1m in both cases. How it was raised is irrelevant; you won't find a buyer for less or more than $1m if that is its market price.

GM and Tesla are both public market stocks. Regardless of how they raised previous capital, the market is valuing Tesla higher.

Re: Why Tesla Is Worth More Than GM

#52

Post by mcnamaratw »

coralreef wrote: post #51
heifer2822 wrote: post #34

Earlier quoted context omitted.

I'm not an expert on this but I think the point was market cap is the value of all outstanding shares. Tesla raised money through venture capital while GM raised money by going to the bank and getting a loan. Think about buying a $1M rental property. One guy gets 9 friends together and they each put up $100k for 10% of the house. The house/business is worth $1m. The market cap is $1m. Another guy wants to buy a $1m r…

The house's market value is the same as its market cap. It would still be $1m in both cases. How it was raised is irrelevant; you won't find a buyer for less or more than $1m if that is its market price. GM and Tesla are both public market stocks. Regardless of how they raised previous capital, the market is valuing Tesla higher.

"The house's market value is the same as its market cap."

That's because houses are quoted in total, not just the equity piece. Stocks are only the equity. (They could quote just the equity piece of houses. In that case it would be unhelpful to compare prices without checking the debt.)

Re: Why Tesla Is Worth More Than GM

#53

Post by [deleted] »

coralreef wrote: post #51
heifer2822 wrote: post #34

Earlier quoted context omitted.

I'm not an expert on this but I think the point was market cap is the value of all outstanding shares. Tesla raised money through venture capital while GM raised money by going to the bank and getting a loan. Think about buying a $1M rental property. One guy gets 9 friends together and they each put up $100k for 10% of the house. The house/business is worth $1m. The market cap is $1m. Another guy wants to buy a $1m r…

The house's market value is the same as its market cap. It would still be $1m in both cases. How it was raised is irrelevant; you won't find a buyer for less or more than $1m if that is its market price. GM and Tesla are both public market stocks. Regardless of how they raised previous capital, the market is valuing Tesla higher.

[deleted]

Re: Why Tesla Is Worth More Than GM

#54

Post by nbouscal »

kgwgk wrote: post #46
nbouscal wrote: post #38

Earlier quoted context omitted.

adventured is having a really hard time with your phrase "two identical companies". The answer to your question is yes, if you had two identical companies and then gave one of them $10B in cash, that company would be worth $10B more.

Actually adventured is right on non-operating cash being usually discounted. In general the second company will not be valued at $10bn more than the first. Would you rather have a $1 in cash and a $9 share in the first company, or a $10 share in the second company where $1 is the cash per share? The second case is more risky so you wouldn't pay the full extra $1 for the second share. Of course it could also be the ca…

> The second case is more risky

Not if they're otherwise identical companies, it isn't. There may be reasons to expect a correlation between risk and cash holdings, or something to that effect, but ultimately a share in a company is a share of ownership of that company's assets. If a company didn't become $10B more valuable when given $10B in cash, where exactly did that value disappear to? Value doesn't vanish into thin air simply because it's now owned by a company.

Re: Why Tesla Is Worth More Than GM

#55

Post by kgwgk »

nbouscal wrote: post #54
kgwgk wrote: post #46

Earlier quoted context omitted.

Actually adventured is right on non-operating cash being usually discounted. In general the second company will not be valued at $10bn more than the first. Would you rather have a $1 in cash and a $9 share in the first company, or a $10 share in the second company where $1 is the cash per share? The second case is more risky so you wouldn't pay the full extra $1 for the second share. Of course it could also be the ca…

> The second case is more risky Not if they're otherwise identical companies, it isn't. There may be reasons to expect a correlation between risk and cash holdings, or something to that effect, but ultimately a share in a company is a share of ownership of that company's assets. If a company didn't become $10B more valuable when given $10B in cash, where exactly did that value disappear to? Value doesn't vanish into…

Your loss is limited to $9 in the first case, but you can lose $10 in the second case. If you think this is not more risky, fine.
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