Why does Tesla have a larger market capitalization than GMSo

Why does Tesla have a larger market capitalization than GM?

Solution

Market capitalization = Number of shares outstanding * Share price

Since Tesla has a very large equity and no debt and high cash, the market capitalization of Tesla is about 50.5 Billion which is higher than GM which has a market capitalization of $44.8 Billion.

But, the true picture is only obtained when we look at the enterprise value which also includes the debt. Enterprise value = Equity + debt - cash. So, when we include the debt as well, the enterprise value of GM will be about 215.8 billion and that of Tesla is only 64.5 billion which gives the true picture.

In conclusion, due to absence of debt and high cash in the books of account, the market capitalization of Tesla is higher than that of GM. But, we look at the real enterprise value, we get a true picture.