By Forrester Sorensen, Staff Writer
Despite widespread skepticism and a number of critics, Tesla and its polarizing CEO Elon Musk continue to appear unstoppable. On Monday October 25th, carried by a surging stock price, Tesla became just the fifth company to ever reach a one trillion dollar market valuation, joining Microsoft, Apple, Amazon, and Alphabet (Google) in the exclusive club.
Of the five, Tesla was the second fastest company to reach the trillion-dollar milestone, doing so eighteen years after the company was founded. The only company to hit this threshold quicker was Facebook, which achieved the feat in just 17 years.
Tesla’s recent meteoric rise in value started the previous Friday and continued into the subsequent Monday. Industry professionals attribute the growth to two main causal factors. First, Tesla posted extremely positive third-quarter earnings this year, beating its expected revenue and earnings per share figures. Additionally, the firm reported a net income of $1.62 billion for the quarter, which was more than five times the reported net income from Q3 in 2020.
Tesla’s stock price received a further boost on Monday with the announcement that rental car company Hertz would purchase 100,000 Tesla Model 3s in a joint venture with Uber. Fifty thousand cars will be added to Hertz’s general rental fleet, while the other fifty thousand electric vehicles will be used exclusively by Uber drivers. There is also the possibility for a secondary order of an additional 100,000 cars depending on the success of Uber’s and Hertz’s partnership. The buzz this statement created amongst retail and institutional investors alike sustained the impressive growth of Tesla’s share price and contributed to the company’s market value surpassing one trillion dollars.
Tesla’s CEO, Elon Musk, seemed pleased yet slightly surprised that the Hertz news had such an impact on the company’s soaring market cap, as he tweeted, “Strange that moved valuation, as Tesla is very much a production ramp problem, not a demand problem” on October 25th.
Regardless of what factors contributed to Tesla’s skyrocketing share price, Musk should be elated. In addition to being the firm’s CEO, he also owns almost a quarter of the company. This means that after the stock price’s surge from Friday and Monday, his 22.4% stake in Tesla is worth approximately 230 billion dollars. The stock’s increase places Musk’s net worth around $250 billion, which currently earns him the title of Wealthiest Person in the World, surpassing Jeff Bezos.
At this moment everything seems to be going wonderfully for Tesla, but there are questions surrounding the company’s future prospects. Tesla is currently one of the top five companies in the world based on market capitalization, but is this position amongst corporate giants such as Amazon, Google, and Microsoft sustainable? Will Tesla be able to maintain its market share as other, more established, auto manufacturers make greater strides in the electric vehicle space? Will Musk and his executives be able to continually innovate and improve their product offerings as Apple has for the past few decades?
Gene Munster, a financial analyst at Loup Ventures, says that Tesla and its share price still have significant potential for growth. He predicts that as consumers transition towards electric vehicles, some traditional auto manufacturers will fall by the wayside, providing an opportunity for Tesla to capture a greater market share and increase their revenues. By utilizing valuation multiples similar to those used by Apple, Munster suggests that Tesla could eventually be worth as much as $2.5 trillion.
Regardless of one’s opinion on Tesla or the value of its shares, the increasingly common occurrence of seeing a Tesla on the road, coupled with the company’s strong financial position, indicates that Tesla is here to stay. Whether it is able to integrate its products so deeply into society like Google or Amazon have, remains to be seen, but Tesla will undoubtedly be a company to monitor closely in the coming years as a key player in the automotive and tech industries