The valuation of Tesla and BMW in a disrupted industry : a comparative analysis
Creators: name: Thumiger, Bettina
Publisher: name: ZHAW Zürcher Hochschule für Angewandte Wissenschaften
Year: 2021
Subjects: 338: Produktion

description: The arrival of the Fourth Industrial Revolution (Industry 4.0) has brought about seismic changes within the automotive industry. Against the backdrop of Industry 4.0, a chasm in the market capitalization trajectories of traditional OEMs and Tesla has formed. This dramatic divergence indicates that a comparative analysis may provide valuable insight into these new market dynamics and the bilateral implications for the valuations of both new entrants and the established players. It is within this context that this paper analyzes the market valuations of BMW and Tesla.
The first section of the paper focuses on the collection and processing of the necessary data and provides a detailed overview of both companies by means of a SWOT analysis. The underlying methodology for the empirical analysis is the application of two traditional valuation methods, the DCF (discounted cash flow) and the trading multiples method, used to calculate BMW and Tesla’s equity values between 31 December 2019 and 31 December 2020. Comparing the obtained equity values to each company’s market capitalization suggests that Tesla is overvalued and BMW is undervalued.
The empirical analysis makes up the second part of the paper. It includes an assessment of the findings made in the first section, but exceeds the scope of this quantitative analysis by contextualizing the resulting valuations by means of a qualitative analysis. The aim of this qualitative analysis is to establish a framework with which to extend the valuation process beyond the merits of the two companies’ financial data, where traditional methods generally reach their limits.
This qualitative analysis is predicated on an analysis of both the industry and the individual companies. An assessment of the current automotive industry by means of a PESTEL (political, economic, social, technological, environmental, and legal) analysis contextualizes BMW and Tesla’s valuations as a product of this highly dynamic environment and each company’s ability to identify and capitalize on the emerging trends that are reshaping the industry. The individual analysis of both companies frames the two companies’ valuations within a life-cycle perspective of corporate evolution and analyzes their strategies using different theories including disruptive innovation, blue ocean strategies, and the ten determinants of corporate success (i.e., ten levers). In BMW’s case, this contextualization reinforces the quantitative findings that suggest the group’s market value is undervalued. On the other hand, Tesla’s innovative strategy and position as a first mover within the context of the Fourth Industrial Revolution lends credence to its high market capitalization.
The paper’s findings evince that intangible assets are taking on an increased importance as a consequence of this new and dynamic environment. This has resounding implications on how value is understood, generated, and measured, and suggests that company valuations predicated solely on a firm’s financial data may provide an incomplete picture of their true value.