The market cap for Tesla & Rivian is crazy.

In almost everyway you look at it. The public float of Rivian (an electric vehicle startup currently focusing on recreational vehicles) was monumental, ground breaking and head-scratching. The startup floated at $US78 per share and within days reached $US179, which equals a market cap of $US183 billion, which is more than Ford ($US79 billion) which owns 12% of Rivian and produces 10000000000% more cars, revenue and profit (Rivian has not delivered any cars, booked any revenue and will not have a profit for the foreseeable future).

As an aside – the market is saying that $22 billion of Fords market cap (or a quarter of their total) is because of their 12% ownership of Rivian. (doesn’t make sense).

But obviously, the stock market isn’t just about a moment in financial time. The price of a share of a company is based on the expectation of future returns. Therefore, the public consensus is that Rivian is going to be bigger and have greater cashflows than Ford in the future (when, nobody knows).

The Tesla market cap is even more extraordinary. Currently, Tesla has a market cap of $US1.15 trillion, which is greater than the next 9 automakers combined. In this instance, the market is expecting Telsa to one day be the ‘Apple’ of cars, where they capture the majority of marketshare and profits generated in the industry. This is possible – but not guaranteed.

The new EV entrants have gained the attention of the legacy car makers and they are collectively out spending Tesla & Rivian by a massive margin on EV motor, battery and autonomous technology. Traditionally, the car industry has been dominated by the companies that spend a greater share on investment and R&D in the technologies that end up being the future. But the current outspending may not last.

With such an extraordinary market cap, Tesla can easily raise a lazy $100 billion for a new project or ‘Elon’ vision and only have a mild dilutionary effect on their shareholders. In addition, this cost of capital would almost be free, which is an advantage that the other car makers simply don’t have. In addition, Tesla has no debt and a financial crisis or rate rises would have a huge effect on the indebted legacy brands, which would be forced to cut R&D spending to shore up cash.

VW have recently tried to remarket their company image as one that would be the worlds largest EV brand – the speculation they are trying to gather some of the magic dust that Tesla, Rivian and Polestar can capture. But so far it has little effect on their market cap of $US137 billion.

The legacy car makers have the factories, supply chains, knowledge, distribution – but Tesla and the other start ups have a story – and in this environment they are getting free money in return.