Tesla Inc (NASDAQ:TSLA) is often called overvalued, and if you look at the automaker’s revenue compared to its market cap, the stock is hilariously expensive compared to other American automakers like Ford or General Motors.

For example, Ford sold $151 billion worth of cars in 2016 while Tesla only sold $7 billion, but the two automakers have almost identical market values.

Undeniably, Tesla has a relatively high valuation, but most of its investors don’t care. Tesla’s revenue is growing fast, and it has another advantage that is often overlooked: margins.

Several analysts point out that Tesla makes a pretty large gross profit on its vehicles, and this can help justify the high valuation – especially if sales of the mass-market Model 3 live up to expectations. Instead of comparing Tesla to Ford, these analysts suggest comparing the company to luxury automakers like BMW, Mercedes, and Porsche. Such comparisons help justify Tesla’s valuation as well as help retail investors better understand the growth assumptions involved in going long on the stock.

The Changing Attitude Towards Tesla

Analysts often disagree on Tesla, but after a disappointing first quarter result, general market sentiment turned distinctly negative against the electric automaker and many loud voices began waging a war of words against the company. David Einhorn, from Greenlight Capital, suggested that Tesla is a “cult stock” reminiscent of the dot-com bubble in early 2000.

Several analysts from Bernstein took a more moderate tone suggesting that Tesla’s valuation implied that the company had to become “BMW or Mercedes in size with superior profit margins to justify the valuation.”The analysts have a good point. It makes more sense to compare Tesla to luxury automobiles like BMW and Mercedes because its gross margins are more similar.

The comparison also puts Tesla’s priced-in growth assumptions into greater context by giving retail investors a more accurate barometer of what the company’s stock price implies. George Galliers, a Tesla analyst, recently built upon these ideas, shedding some light on a strong bullish thesis for Tesla that is predicated on high gross margins and growing revenue:

“To put Tesla’s growth in context,” Galliers said, “we note it took Porsche 10 years and four product lines to grow from” about 35,000 units to just under 100,000. And that was with four different product lines, compared with Tesla’s three. “Even with only a small contribution from the more affordable Model 3, Tesla is on course to achieve similar growth in only 3 years.

Re-envisioning Tesla’s Valuation

Tesla’s stock prices in significant growth. But compared to high-margin European luxury automakers, the company doesn’t look as overvalued as it does against mass-market American companies like Ford or General Motors.

In the Q1 earnings report, Tesla revealed a gross margin of 27.4%. This margin is superb and actually, blows both Ford and General Motors (who have gross margins around 10-15%) out of the water. On top of this, Tesla’s  margin can be expected to grow as the company consolidates its production infrastructure for the Model 3, expands into China, and delivers on potential cost-savings from its Gigafactory battery facility.

Conclusion

Tesla’s valuation is not as unjustified as comparisons with traditional American automakers suggest. The electric automaker’s strong gross margins are one of its overlooked strengths, and several analysts are reminding the pessimistic market of this important fact. Comparing Tesla with high-margin European automakers like Mercedes and Porsche gives a clearer visualization of the assumptions implied in the company’s stock price and make a strong case for going long the stock.