Tesla surpassing GM? Only on Wall Street

NEW YORK -- Every three days, General Motors sells more vehicles than Tesla Inc. sold in all of 2016. GM earns nearly $1 billion a month, while Tesla has lost money every year of its existence.

GM beat Tesla to market with the first practical electric car that isn't just for the wealthy.

But all of that is irrelevant on Wall Street.

Which is why it's important to remember how irrelevant Wall Street's arbitrary measure of a company's value is on every other street in America, where you're far more likely to see a GM vehicle in the driveway than a Tesla, or to meet someone whose job depends on GM than on Tesla (outside of Silicon Valley, at least). 

Unless you're being bought out or borrowing money, market cap effectively has little bearing on a business. 

For a few hours on April 10, Tesla was the most valuable U.S. automaker, briefly topping GM before falling back into second place ahead of Ford. (All of them remained well behind global leader Toyota.) The parity between 108-year-old GM and 14-year-old Tesla was the talk of the New York auto show last week -- an event where Tesla was nowhere to be found. 

Several GM executives downplayed the comparison, but there's naturally some resentment atop the Renaissance Center about how easily Tesla investors lap up every tweet from CEO Elon Musk while GM's record earnings and award-winning products are met with a mix of skepticism and apathy. 

"I definitely believe we're undervalued," Alan Batey, GM's North America president, told reporters here. "I'm not going to lie to you and say I like it. Of course I don't." 

Meanwhile, Musk and his fans get a thrill every time Tesla short sellers -- doubters hoping to cash in if the stock declines -- are burned by another gain. "Stormy weather in Shortville," Musk tweeted when his company overtook Ford Motor Co.'s market cap on April 3, just a week before doing the same to GM. 

At this point, it should be clear that neither GM's nor Tesla's stock price depends on how many vehicles the automakers sell or how much money they make. Tesla's shares got to more than $300 each by selling investors on the idea that it is the future and traditional automakers are the past. Tesla shareholders are betting that the company is on the cusp of greatness while others wonder if it's on the brink of bankruptcy. 

AutoNation CEO Mike Jackson last week called Tesla's valuation "inexplicable." He credited Musk with creating "a brand that has a strong, cultlike following" but noted that Tesla's prospects, as it keeps burning through cash, remain extremely murky. 

"It's either one of the great Ponzi schemes of all time, or it's all going to work out," Jackson said. 

Here are some of the reasons why the rest of the auto industry has had such trouble getting its arms around Wall Street's seemingly unconditional love for Tesla:

• Sales: Tesla sold 76,230 vehicles globally in 2016. GM sold 10 million. GM sold about the same number of Chevrolet Camaros as Tesla sold of anything. In the first quarter of 2017, GM sold 8,655 Chevrolet Bolt EVs and Volt plug-in hybrids in the U.S. Tesla sold an estimated 8,800 of its only two nameplates, the Model S and Model X. So when just counting plug-ins, Tesla is ahead of GM, but not by much. And that's with the Bolt available only in a handful of states so far.
• Net income: Tesla has never posted an annual profit. In 2016, it lost $675 million on revenue of $7 billion. GM reported 2016 net income of $9.4 billion on revenue of $166 billion.
• Vehicles launched: Tesla has introduced three vehicles -- ever: the now-defunct Roadster, the Model S and the Model X. It's nearing the launch of a nameplate, the $35,000 Model 3, that should go a long way toward showing whether Tesla will live up to its hype or flame out. Tesla's ambitions for the Model 3 are enormous. No startup automaker has ever grown at the pace Musk has projected. GM, meanwhile, is in the midst of launching four crossovers this year.
• Trucks: Musk tweeted last week that Tesla would show a semi truck this fall and a pickup in 18 to 24 months. Electric cars don't generate profits, but pickups do, which GM knows well because it sold more than 1 million of them in the U.S. and Canada last year. But what the market is for an electric pickup -- and who would buy one from a company that has never made a pickup before, given how hard it is to conquest fiercely loyal pickup buyers -- is a big unknown.
• R&d: From 2014 through the first half of 2017, Tesla will have spent about $10 billion total on r&d and on capital expenditures, according to Morgan Stanley. GM spends about $7.5 billion on r&d every year.
• Cash flow: Tesla burned through $448 million in cash during the fourth quarter of last year. GM's automotive operating cash flow in the same period was $4.3 billion positive.
• ROIC: Return on invested capital measures a company's cash flow in comparison to the capital put into it. Tesla has no net cash flow, so its ROIC was minus 19 percent in the fourth quarter of 2016. GM's was a record 29 percent.
• Shareholder returns: Tesla has repeatedly turned to the markets to raise capital, including a series of offerings announced in March to generate $1.15 billion. GM, in contrast, has been trying to boost its stock price by buying back shares. GM also offers a quarterly 38-cent dividend, producing a yield that's nearly double that of an average company.

Add it all up, and even some on Wall Street have a hard time explaining how Tesla's shares have continued to soar without hard numbers on its side, no matter how much potential the company has. 

"At some point, you've got to turn cash-flow positive," John Murphy, an analyst with Bank of America Merrill Lynch, said last week. "They're doing cool stuff, but the money's got to come in at some point."