Using Tesla Math, GM’s Buick Unit Should Be Worth $1.1 Trillion

NEW YORK (TheStreet) -- You've all seen the recent TV ads saying that America is rediscovering GM's (GM) Buick unit.

Well, investors would be wise to discover how Buick's sales and valuation stack up against those of electric car company Tesla (TSLA) , because the results suggest Tesla's stock is wildly overpriced.

Buick offers five cars for the U.S. market, but its largest sedan, the LaCrosse, comes the closest to competing with luxury sedans such as Tesla's Model S.

Granted, there isn't much cross-shopping between these two cars, although that is mostly because of image reasons. Both are of similar size (except width) and include similar interior space for five adults.

The average selling price of a Tesla is more than twice the average selling price of a Buick. Part of this difference, however, is in the de facto prepayment of gasoline, as Tesla advocates never fail to remind us. If you spend $2,400 per year on gasoline (12,000 miles, 20 MPG, $4 per gallon), the idea is that a Tesla saves you $48,000 on gasoline over a car's 20-year life cycle, making the total price you pay for a Tesla and a Buick similar in the long run.

For the first half of 2014, Buick sold 114,000 cars in the U.S. and 451,000 cars in China for a total of 565,000. Assuming a similar second half of 2014, that would imply Buick sells 1.13 million cars a year, or 32 times the 35,000 Tesla is expected to sell in 2014.

Considering that Tesla's fully diluted market cap rounds to $35 billion (142 million fully diluted shares multiplied by $247), this suggests that Buick should be worth $1.12 trillion ($37 billion multiplied by 32). Clearly, the stock market doesn't agree with such a valuation, as all of GM, which sells 10 million cars a year, is worth less than $60 billion.

If we look at just the LaCrosse model, we get other interesting results. For the first eight months of 2014, Buick sold 33,654 LaCrosses in the U.S. alone. That points to an annual sales number of approximately 50,000.

During the same eight months, Tesla sold an estimated 8,500 cars in the U.S. At a rate of 1,000 per month for the rest of the year, that implies an annual number of 12,500 -- one-quarter of Buick's.

Does this mean that the Buick LaCrosse franchise is worth four times Tesla's market cap of $35 billion, or $140 billion? Again, the market doesn't think so.

What this valuation exercise shows, however, is that if we use Tesla-style valuations, one GM unit, Buick, would be worth $1.12 trillion. There is also a single Buick nameplate -- LaCrosse -- that would be worth $140 billion.

In other words, something isn't right here. Either Tesla is massively overvalued or GM is drastically undervalued and should spin out Buick or the LaCrosse nameplate.

At the time of publication, the author had a short position in TSLA.

Follow @antonwahlman

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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