Tesla has just become the largest car manufacturer in the world, surpassing Toyota, but is this reasonable?

Last week, Tesla CEO Elon Musk liked a tweet that read: “Tesla has officially become the most valuable car manufacturer in the world! Congratulations!”

The tweet also included a screenshot of a list of the world’s 25 largest automakers in terms of market value. This list shows Tesla is ahead of Toyota for the first time in history with a market capitalization of $ 183.67 billion, while Toyota’s similar figure is $ 178.78 billion.

But there’s one problem: Many investors, including those using Bloomberg’s financial data portal, find something else different: Tesla still needs more than $ 25 billion in market capitalization to surpass Toyota.

So who is right? The problem here is quite complicated.

Everyone agrees that the market value of a company or its market capitalization is determined by the market price of the stock multiplied by the number of ordinary shares in circulation. However, the way to determine the outstanding shares is not consistent in many places.

In recent years, Japanese companies have expanded their stock acquisitions to increase profits for investors and they tend to hoard these stocks. With Toyota, which has stepped up its own stock repurchase during the past 6 years, they are holding more shares than any other company in Japan.

In finance, such types of redemption are called treasury shares, but they are declared in very different ways in different countries. Some markets almost prohibit ownership of stocks of this type, while others count them.

When looking at listed companies in Japan, typical fund stocks included in the listed market capitalization. And when a valuable company like Toyota holds so many treasury stocks – more than 14% according to data compiled by Bloomberg – that will make a big impact on market capitalization.

A monthly market capitalization of companies published monthly by the Tokyo Stock Exchange shows that the market capitalization of both treasury stocks and Toyota’s market value as of the end of May is 22 trillion. Yen (205 billion USD) – the figure includes 30 billion USD of treasury shares.

If you remove these treasury shares, Toyota is worth only 18.8 trillion yen ($ 175 billion) according to Bloomberg calculations. This is also true when you search the Yahoo Finance data portal – the source of the tweet announcing Tesla as the world’s most valuable car manufacturer using the data. Many ways of calculating market capitalization, including US listed companies, do not include treasury stocks.

Tesla, meanwhile, doesn’t own any treasury stocks. So is this a reasonable comparison when people are trying to find the world’s largest car manufacturer?

“This is quite semantic. Market cap can be determined in many ways. It depends on what you are trying to reach,” said Nick Reece – Manager at Merk Investment.

After an increase of 6% on Monday’s session, Tesla’s value reached $ 183.8 billion and surpassed Toyota’s $ 175 billion. However, the number of treasury shares held by Toyota has doubled since 2014.

Compare the outstanding shares and treasury shares of the three major car companies.

“I think you can get rid of treasury stocks in market capitalization as long as you make sense of their existence,” said one expert.

Still, in many cases, it might not be right to compare a company that generates an average net profit of 2 trillion yen ($ 18.7 billion) per year over the past six years like Toyota. with a company that has never had a profitable year like Tesla.

“Nobody thought that simply because Tesla’s market capitalization was near Toyota’s level, Tesla is on par with Toyota,” said Norihiro Fujito, strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo said.