Hidden Assets

Why is Tesla worth more than Ford?

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.

At the time typical wages were 300 guilders per year. Illustration: JayHenry. Source: Wikimedia

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”

By |2018-08-06T09:41:51+00:00August 6th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment