Source: Company financials, Bloomberg
(Full disclosure: Charter Trust holds modest positions in both Ford and Tesla. This discussion is NOT a buy, sell, or hold recommendation. If you think the Global Market Update is a place to get stock tips, you’re at the wrong site.)
Both car companies are growing. But Ford had $160 billion in sales last year while Tesla had about $12 billion. Ford employs 200,000 people while Tesla has less than 40,000 workers. Ford had $6 billion in profits while Tesla lost $2 billion. But the market says Tesla is worth 50% more than Ford. Why?
It has to do with intangibles and hidden assets. Hidden assets are items that don’t appear in a company’s financial statements. Patents and trademarks are hidden assets. A business practice or management style is a hidden asset. There’s no way to put the way Elon Musk runs meetings versus Jim Hackett’s management team into an income statement or balance sheet.
Hidden assets explain a lot. During the tulip-mania bubble in the 17th century, the price boom began in mid-November 1636, right around the time of planting. The price collapse happened 3 months later, as the bulbs began to sprout. The price run-up occurred when no one could see what was going on. Prices first started to fall in the city of Haarlem, where the climate favors early growth. Once the level of sprouting and the nature of the shoots was clear, the bloom came off the tulip.
There are more things in heaven and on earth than can be disclosed in GAAP-compliant financial statements. Often the only way to understand what’s behind the numbers – or what’s in the ground – is to do a little digging.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”