Tesla heads for trillion dollars as electric vehicles go mainstream

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Tesla Inc. on Monday joined an elite group of companies with a market value of at least $ 1,000 billion, a key milestone for the Elon Musk-led automaker whose shares have been tearing apart in the middle of a global transition to electric vehicles.

The maker of the Model 3 sedan – the world’s best-selling electric car – is now the second fastest company to reach the mark, in just over 11 years since its public debut in June 2010. Facebook Inc. did faster, although its market cap is now less than $ 1,000 billion as the stock has sold in the past two months. Other US-listed members of the trillion dollar club include Apple Inc., Microsoft Corp., Alphabet Inc., and Amazon.com Inc.

Tesla stock closed 13% higher, its biggest one-day move since March 9, at a new high of $ 1,024.86. This lifted its market cap comfortably above $ 1,000 billion, based on roughly one billion shares outstanding as of October 21.

“Tesla stocks tend to be quite volatile and driven by a wide range of difficult-to-understand market forces,” Morgan Stanley analyst Adam Jonas wrote in a note. While the analyst estimates Tesla shares to be worth $ 1,200, Jonas doesn’t expect stocks to trade at such a high in the near term, the analyst noted.

Tesla’s addition to the mega-cap tech name coterie comes as the auto industry stands on the cusp of a massive transformation, with electric vehicles set to replace gasoline-powered cars around the world. The company and its charismatic and often controversial co-founder and CEO, Elon Musk, are seen as a key driver of this change.

Musk’s wealth has also skyrocketed alongside the company’s latest stock price hike. The billionaire co-founder is now the richest man in the world, with a net value of about $ 281 billion. Musk is also Tesla’s largest shareholder, with nearly 17% stake, according to Bloomberg data.

Read more: Elon Musk’s Wealth Exceeds One-Quarter Billion Dollars

The company’s shares have had a straight streak over the past five months, climbing more than 80% since mid-May. However, the rally took a big boost this month amid a wave of encouraging headlines: strong third-quarter earnings and deliveries, a big order from car rental giant Hertz Global Holdings Inc. , and a report that the company’s Model 3 was the best-selling vehicle in Europe last month.

“Tesla is the leader in electric vehicle manufacturing, batteries and range,” Morgan Stanley wrote on Monday. “Tesla also has a suite of enabling technologies and other activities that would allow the company to be a long-term automotive and energy champion.”

The push to electrify all modes of transportation – especially cars, trucks, buses and vans – has escalated 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 encourage companies to adopt greener technologies. The entire electric vehicle ecosystem – including automakers, battery developers, and charging network operators – has grown as a result.

“The outlook for electric vehicle adoption is improving thanks to a combination of increased political support, further improvements in battery density and cost, construction of additional charging infrastructure and growing commitments from automakers, ”Bloomberg New Energy Finance noted in a September report. . The BNEF has estimated that sales of electric passenger vehicles will increase sharply over the next few years, reaching 14 million in 2025 against 3.1 million in 2020.

Still, some say those bright, shiny growth figures still don’t fully justify Tesla’s gigantic size. It is not only the largest automaker in the world, its market capitalization is significantly higher than that of all the major automakers taken together. However, Tesla still only manufactures a fraction of the number of cars that some of these companies, like General Motors Co., produce.

“We recognize that Tesla is performing flawlessly, but that does not change our view. Tesla is extremely overvalued,” wrote Craig Irwin, analyst at Roth Capital Partners, in a note on Oct. 21, saying that the current valuation of the company appears to be based on “the specious assumption. that the hundreds of electric vehicles slated for launch by 2025 will all be flops.”

Competition is indeed intensifying. After being on the sidelines for years, with mostly hybrid cars or a few electric cars in their lineup, nearly every major traditional auto company this year has announced aggressive plans to manufacture electric vehicles and develop the required ecosystem that includes batteries and charging station networks.

On the flip side, bullish investors and analysts believe Tesla should not be compared to its automotive counterparts at all. It’s more like a tech company, they claim, and is properly priced accordingly.

Tesla shares are currently trading at 178 times their estimated earnings in 2021, compared to 43 times 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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