Tesla Motors Inc Not Impressing Brand Ranking Service

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Tesla Motors Inc (NASDAQ:TSLA), the high end electronic car manufacturer in the news as much as some of the largest automotive brands and whose stock has soared in the past year, has a brand value ranked closer to the bottom echelon car manufacturers than the top.  Only one US brand cracked the top ten. Harley-Davidson, among the highest in brand loyalty, ranked 27th.

In its 2014 rankings, the Brand Finance Auto 100 placed Tesla Motors Inc (NASDAQ:TSLA) at #62, with a $1.19 billion brand value, below such notable automotive brands as Geely (61), Foton (60), FAW (54), Smart (53), Chagan (51), Pang Da Automobile (50).

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Brand value and market cap not connected

Tesla Motors Inc (NASDAQ:TSLA)’s “brand value” stands in contrast to a market cap of $29 billion.  The stock started 2013 in trading near $32 per share and reached a high just under $200, among the most breathtaking rises in value in the history of automotive companies in one year.  The stock was trading near $235 today.

Top ten brands include one US-based automotive manufacturer

The top ten automotive brands the web site ranked, in order, were: Toyota, BMW, Volkswagen, Mercedes-Benz, Honda, Nissan, Ford, Porsche, Hyundai Motors and Renault.  Peugeot, which exited the US market amidst quality issues, was ranked number 11.

Notable US-based firms were Chevrolet (13), General Motors (18), GMC (21), Harley-Davidson (27), Jeep (37), Lincoln (39), Ram Trucks (47) and Buick (48).

Method to determine rankings

The London, England-based Brand Directory combines both discretionary and quantitative analysis when determining its rankings.  Its rankings methodology is:

Definition of ‘brand’

Financial accounting and reporting standards requires a clear definition of what intellectual property is included in the definition of ‘brand’.

Brand Finance defines brand as the “Trademark and associated IP including the word mark and trademark iconography”.

Royalty relief methodology

Brand Finance calculates brand value using the Royalty Relief methodology which determines the value a company would be willing to pay to license its brand as if it did not own it. This approach involves estimating the future revenue attributable to a brand and calculating a royalty rate that would be charged for the use of the brand. The steps in this process are as follows:

— Calculate brand strength on a scale of 0 to 100 based using a balanced scorecard of a number of relevant attributes such as emotional connection, financial performance and sustainability, among others. This score is known as the Brand Strength Index.

— Determine the royalty rate range for the respective brand sectors. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database of license agreements and other online databases.

— Calculate royalty rate. The brand strength score is applied to the royalty rate range to arrive at a royalty rate. For example, if the royalty rate range in a brand’s sector is 1-5% and a brand has a brand strength score of 82 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4.1%.

— Determine brand specific revenues estimating a proportion of parent company revenues attributable to each specific brand and industry sector.

— Determine forecast brand specific revenues using a function of historic revenues, equity analyst forecasts and economic growth rates.

— Apply the royalty rate to the forecast revenues to derive the implied royalty charge for use of the brand.–

The forecast royalties are discounted post tax to a net present value which represents current value of the future income attributable to the brand asset.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com