Drastic changes in the market capitalization ranking of global automobile manufacturers

By Jeff Lee 2022-06-28

We are used to looking at the global auto market from the perspective of market share rankings, but when we switch to company market capitalization, we get a very different picture. Because the surge of new automotive technologies, including electric vehicles, has swept around the world, changes in the market capitalization of automotive companies are no longer as insignificant as they were in the past; instead, the same magnitude of oscillation seen in the technology industry is surfacing. This is because structural changes in operations that are different from the past, including the rapidly increasing importance of control over supply chains, the competition for new technology development, the emergence of innovative retailing models, and even the stability of production in the face of the COVID-19 pandemic and wars, are all key factors that affect market cap and render the trend of market cap rankings more and more interesting.

 The wave of stock price spikes following the IPOs of new electric vehicle brands in the U.S. subsided last year, and changes in the market capitalization of global automakers have gradually returned to sanity since the first quarter of this year. Of course, there are many factors that go into the rise and fall of stock prices, and since I'm not a financial expert, I can't analyze them in detail or predict the future. But essentially, the most crucial aspects of the auto industry are profitability, potential for future performance, control over supply chains, and the ability to revolutionize technology and operate in a sustainable manner. As for sales volume, which is often a tug of war in the auto industry, it seems to be a secondary indicator of stock price increases or decreases.

In June's global market capitalization rankings, four companies reached the US$100 billion mark: Tesla, Toyota, BYD, and Volkswagen Group. Mercedes-Benz, BMW, GM, Ford, Great Wall Motor, and Honda ranked 5th to 10th respectively, and close to one another. The top 10 rankings clearly had little to do with sales volume. Two companies stood out… Tesla, strong leader in market cap, has undergone a 30% fall from last year's whopping $1 trillion,

and it remains to be seen whether this decline will be halted when the Shanghai Gigafactory resumes operations and the Berlin Gigafactory is fully in operation. The other rising star is BYD, 10% of which is owned by the Oracle of Omaha, Warren Buffet. The company's stock price has been soaring since 2020, and with its complete EV product line, strong self-sufficient supply chain, and a 348% YOY jump in sales volume over the first five months, BYD has surpassed Volkswagen Group to rank third in market cap. Let's go down the list to look at the top 30 (the 30th place happens to be Taiwan's Hotai Motor). I've realized that there are as many as seven Chinese car companies (not brands) that people in Taiwan are not familiar with, plus BYD, which means that Chinese car companies account for a quarter of the top 30. In particular, BYD, Great Wall, NIO, Li Auto, XPeng, and Geely are Chinese self-owned brand companies (including merged and acquired brands). There is no doubt that the new Chinese car makers, with more potential for development, have become the emerging auto power after Germany, Japan, the United States and South Korea. Another emerging force in automaking is the U.S. EV startups. Many of these brands are not even in mass production yet, but they have already outdone traditional car manufacturers with astronomical market cap. Even though quite a few of these new brands plummeted from their highs in less than a year, their stock prices cannot be interpreted in terms of P/E ratio. At best, you can only call it "Price-to-Dream ratio"! I think in the next few years, the market capitalization ranking of car manufacturers will fluctuate quite dramatically because these startups are still in the "Price-to-Dream ratio" phase. Maybe there will be a few brands that will truly stand out and implement a profitable business model in the future.