Tesla joined an elite group of companies with market values of at least $ 1 trillion on Monday, a key milestone for the Elon Musk-led automaker whose shares have been in a plunge amid a global shift toward those. electric vehicles.
The maker of the Model 3 sedan, the world’s best-selling electric car, is now the second-fastest company to hit this mark, taking just over 11 years since its public debut in June 2010. Facebook Inc. made it more. fast, although its market capitalization is now under $ 1 trillion since the shares have been sold in the last two months. The other trillion dollar club members traded in the US include Apple Inc., Microsoft Corp., Alphabet Inc., and Amazon.com Inc.
Tesla shares closed up 13%, their biggest one-day move since March 9, with a new record of $ 1,024.86. This brought its market capitalization comfortably above $ 1 trillion, based on approximately 1 billion shares outstanding as of October 21.
“Tesla stocks tend to be quite volatile and driven by a wide range of market forces that are difficult to understand,” Morgan Stanley analyst Adam Jonas wrote in a note. While the analyst believes that Tesla shares are worth $ 1,200, Jonas has no expectation that the shares will trade at that level anytime soon, the analyst noted.
Tesla’s addition to the megacap tech naming circle comes as the auto industry is on the cusp of a massive transformation, and electric vehicles are expected to take the place of gasoline-powered cars around the world. The company and its charismatic and often controversial co-founder and CEO, Elon Musk, are seen as one of the main driving forces behind this change.
Musk’s wealth has also skyrocketed along with the latest spike in the company’s stock price. The billionaire co-founder is now the richest man in the world, with a net worth of around $ 281 billion. Musk is also Tesla’s largest shareholder, with a stake of nearly 17%, according to Bloomberg data.
The company’s shares have been on a roll for the past five months, rising more than 80% since mid-May. However, the rally received a major boost this month amid a series of encouraging headlines: strong third-quarter earnings and deliveries, a large order from car rental giant Hertz Global Holdings Inc., and a report that the Model 3 The company was the best. -Selling vehicle in Europe last month.
“Tesla is the leader in making electric vehicles, batteries and autonomy,” wrote Morgan Stanley’s Jonas on Monday. “Tesla also has a set of enabling technologies and other businesses that would allow the company to be a long-term automotive and energy champion.”
The push towards electrification of all modes of transport, especially cars, trucks, buses and vans, has intensified rapidly this year, with governments pledging to find solutions to the climate change crisis. Countries around the world have announced policies to reduce carbon emissions and incentivize companies to move towards greener technologies. As a result, the entire EV ecosystem, including automakers, battery developers, and charging network operators, has grown.
“The outlook for EV adoption is getting much brighter, due to a combination of more policy support, more battery density and cost improvements, more charging infrastructure being built, and increasing commitments. from automakers, “Bloomberg New Energy Finance noted in a September report. . BNEF estimated that sales of electric passenger vehicles will increase dramatically in the coming years, reaching 14 million in 2025 compared to 3.1 million in 2020.
However, some say those bright, shiny growth numbers still don’t fully justify Tesla’s gargantuan size. Not only is it the world’s largest automaker, its market capitalization is significantly larger than all the major auto companies combined. Yet Tesla still makes only a fraction of the number of cars produced by some of these companies, such as General Motors Co.
“We acknowledge that Tesla is running flawlessly, but this does not alter our view that Tesla is egregiously overvalued,” Roth Capital Partners analyst Craig Irwin wrote in a note Oct. 21, saying that the company’s current valuation appears to be based on the “misleading assumption”. that the hundreds of electric vehicles scheduled for launch in 2025 will all be failures. ”
In fact, the competition is mounting. After being on the sidelines for years, with mostly hybrids or just a few electric cars in their lineup, nearly all of the major legacy auto companies this year have announced aggressive plans to build electric vehicles and develop the required ecosystem that includes batteries and station networks. loading.
Optimistic investors and analysts, on the other hand, say that Tesla shouldn’t compare itself to its automotive peers at all. It’s more like a tech company, they argue, and is properly priced accordingly.
Tesla shares are currently trading at 178 times their estimated 2021 earnings, compared to 43 times for the NYSE + FANG index, whose other nine members include Nvidia Corp., Alphabet, Apple, Twitter Inc., Facebook, Amazon.com , Netflix Inc., Alibaba. Group Holding Ltd. and Baidu Inc.
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