Tesla’s losses piled up in the middle of last year, sales were inadequate to cover expenses, and large debt payments loomed. The situation was so bad that an influential Wall Street analyst raised the possibility of it Tesla wouldn’t be able to pay its bills and would have to be financially restructured.
Since then, the electric car and solar module maker’s shares have skyrocketed, up around 700% this year alone. Monday morning it was included in the prestigious S&P 500 stock index with a market value of over $ 600 billion. It is the largest addition in the history of the index.
Tesla’s rise to the world most valuable automaker Ranked among the top 10 largest U.S. companies is a surprising feat considering the company lost $ 1.1 billion in the first half of 2019. The rise is so impressive that even CEO Elon Musk said the stocks were overpriced.
Global sales hit a record nearly 140,000 in the third quarter, debt has been reduced through income from stock offering, and Musk’s company is building two huge factories to manufacture new vehicles and meet demand. Heavily loyal followers have invested billions and Musk has become the third richest man in the world according to Forbes as his stock-based wealth grows.
Tesla and Musk have created strong divisions on Wall Street for years, and the rise from near-collapse to astronomical rating is no exception.
Many investors who added Tesla’s value are individuals who bought the stock after a five-for-one split last summer lowered the price of a single stock. The bulls are largely betting on the company’s future, pointing to five profitable quarters in a row, rising sales, and the world’s leading battery and software technology to justify their bets.
Bears, including short sellers who lost millions of bets against the stock, are still predicting a collapse. They cite limited markets for high-priced Tesla vehicles, repeated quality problems, huge capital costs for factories, and growing competition from conventional automakers.
Tesla shares fell 5.4% after Monday’s opening bell to around $ 665 late this morning.
The New York investment manager Ark Invest has consistently predicted the meteoric rise of Tesla. According to Ark, Tesla has a technological advantage over other automakers, both in terms of performance and the range of its vehicles. And if Musk delivers on its promise to cut battery costs, the demand for electric vehicles will rise, with Tesla uniquely positioned to respond on a large scale.
“If you look at a company like Tesla, they are single-handedly making this curve because they are the largest manufacturer of batteries,” said analyst Tasha Keeney.
Tesla’s most affordable vehicle, the Model 3, attracts buyers from mainstream brands with a base price of $ 37,990, Keeney said. That can quickly go above $ 40,000 or even $ 50,000 with options.
Tesla’s upcoming angular Cybertruck pickup truck, which starts at $ 39,900, will hit a mass-market price on par with other pickups, Keeney said. And Musk has promised battery breakthroughs that will bring in a cheaper vehicle for $ 25,000, she said.
Ark sees Tesla’s shares climb to $ 1,400 by 2024. The investment firm also sees Tesla’s earnings potential one day if it uses its vehicles to operate profitably autonomous robot taxi service. Keeney says Tesla is building a huge database of experiences from cars now driving on the road, giving it an edge over competitors like Alphabet Inc.’s Waymo, considered a leader in autonomous driving technology.
Share “Dramatically” Overvalued?
All of this makes little sense to the bears, who consider Tesla’s rating absurdly high. Tesla is worth more on paper than Toyota, Volkswagen, General Motors, Ford, Fiat Chrysler, Nissan and Daimler combined.
“We believe Tesla stock is not only overvalued, but also dramatically, by virtually every conventional metric,” wrote Ryan Brinkman, an analyst at J.P. Morgan, in a notice to investors. He has a target price of $ 90 for the year on the stock.
Demand for Tesla stock could prove strong on Monday and the following days as institutional investors buy to have their portfolios mirror the S&P 500. Brinkman advises against it.
Tesla Inc. is valued more than twice that of Toyota Motor Corp., which typically sells over 10 million vehicles worldwide each year. Last year Tesla sold 367,500. Toyota’s $ 4.5 billion profit from July to September was more than six times higher than Tesla’s net profit during its five-quarter winning streak.
On a earnings conference call in November, Toyota President Akio Toyoda said Tesla is not yet a real automaker.
“You can use the kitchen and cook analogy,” Toyoda explained. “They haven’t created a real business or a real world yet, but they are trying to trade the recipes. And the chef says our recipe will become the world’s standard in the future. I think that’s kind of a business that they.” to have. “
Tesla, which closed its media relations office that year, did not respond to requests for comment.
One of Tesla’s challenges is to profit from selling vehicles. The company would lose money if it didn’t make payments from other automakers buying government loans to make up for non-compliance with government pollution standards.
Erik Gordon, professor of economics and law at the University of Michigan, notes that revenue from these loans will decline as other automakers roll out their own electric vehicles, he said.
“At some point Tesla has to prove itself as a company, not as a stock market phenomenon,” said Gordon.
To do this, Tesla has to sell more vehicles. The Model 3 was originally billed as a $ 35,000 vehicle for the masses, but it doesn’t make any money at that price, Gordon said. The Cybertruck is Tesla’s best chance to go beyond a niche seller because people pay more for pickups, he says.
But Detroit’s three automakers have all announced plans to own electric pickups and will be defending their main source of income. “They’ll argue about this to the death,” said Gordon.
